Maximus Inc (MMS) 2003 Q1 法說會逐字稿

Good day. All sights are now on the conference line in a listen only movement there will be opportunity for questions after the presentation. Now to your host Lisa Miles.

Good morning and thank you for joining us on the call day is David Mastran Chief Executive Officer, CEO and Richard Montoni CFO. Before we begin I would like to remind everyone that a number of statements today will be forward looking in nature. Please remember such states are prediction and actual results may differ materially as a result of risk we face including those discussed in exhibit 99. 1 of our SEC filing.

We encourage to you read the summary of those risk necessary 2002, 10 K filed with SEC on December 20, 2002. The company does not assume any obligation to revise or update these forward looking statements to reflect subsequent events or circumstances. With that I'll turn over to David Mastran Chief Executive Officer.

Thanks Lisa. Good morning and I’d like to welcome you to our first quarter call and thank you for joining us. Today Rich will open with details on financials followed by my comments on over all business, markets pipeline and guidance. This will be followed up by question and answer period. With that I'll turn it over to Rich.

Thank you David and good morning and thank you for joining us on our first quarter call for 2003. This morning we reported first quarter revenues of $132.7m and EPS of 47 cents per diluted share. Our total revenue of $132.7m for the quarter was slightly below our original guidance primarily due to unexpected delays contract signing. The environment continues to be a difficult one and we are experiencing pressure in certain discretionary components of our existing programs but specifically within certain out sourcing projects in our health and human servicing groups.

Here are revenue details by business segment the consulting services segment these revenues are relatively flat at $33.2m for the first quarter compared to $33.4m for the first quarter of last year. Consulting revenue was lighter than expected and we continue to see softness in management studies and I.T. consulting, largely due to broader market conditions on the other hand we are also experiencing strength in certain areas such as child welfare, ReMax, education, and school base claiming. We do not expect to see pick up in consulting in the second half of the year.

Health services segment, posted first quarter revenues of $39.5m which is in line with our expectations. This compares to revenues $40.2m reported for same period last year. We have seen cut backs in discretionary spending and in health services but the core contracts, most of which have minimum federal requirements do remain strong and continue generate reliable and recurring revenue. Our human services segment, well these revenues for the group were $38.4m, this is 3 percent increase compared to $37.2m reported first quarter of 2002.

Although demands has been slow in traditional markets here we have been successful in winning a couple of key re-bids and auctioneers necessary in child support which offsets certain reduction in discretionary services in our work force service division. We expect that these reductions will have continuing impact in the top line of the second quarter. Re-bids and expansion in the new market will continue to be a top priority for the human services segments for the reminder of the year. On to systems their first quarter revenues were up 15 percent to $21.6m. This compares to $18.8m recorded in the first quarter of 2002.

We remain confident with the outlook of our systems segment. We had key contract awards across most markets but we’ve experience strength in justice solutions and expect continued growth during primarily by adjusting solutions and ERP business. I do want to step back to correct statement I made under consult services group. We expect to see pick up in consulting. I think I said we do not but we do, note that correction. Moving on to SG&A operating margin? We ended quarter with an operating margin of 12.1 % one which was in line with our expectations as we previously discussed some of the increase SG&A relates to the SG&A brought on board by acquired companies and investments we made to market and grow the company over the long term.

These investment are fairly stabilized at this point and we do not expect to see any significant increase in expenses with the current operation. On accounts receivables and DSO as expected DSO trended up and up to 101 days this quarter primarily due to impact of certain contract term and less so due to seasonality. On seasonality the various year and holidays make it difficult to obtain customer focus at the December quarter end. Larger impact was from contracts which impacted us by seven and one half days. There are two contracts that we have which are milestone which counted for largest portion of this increase.

We expect to achieve milestone billing on one of these contracts during the March quarter and the one tract we will achieve milestone billing and we expect that will happen in the June quarter. We do believe these DSO's are in line with 95 to 105 day range we shared with you as a reasonable range. Cash flow from operations and free cash flow on -- on cash flows for the quarter we had $14m sequential increase in receivables and addition to the pay out of our annual bonus and cash from operation is roughly break even at a use of $250,000. Free cash flow was slightly negative at $1.8m.

Our cash balance and stock repurchase program. The balance sheet remains healthy and debt free during the quarter we closed small acquisition for proximately $2m and repurchased roughly 380,000 common shares for seven and-a-half million. Even after these actions we exited the quarter with cash and marketable securities of $84.4m as of December 31, 2002. At December 31st 2002 we had $8.9m remaining authorization for future stock repurchases and we plan to remain opportunistic as we continue to execute our repurchase program.

As a result, the weighted average shares outstanding the end of the quarter were approximately $21.5m. Comment on tax rates over the last few months [inaudible] on a number of tax [inaudible] strategies that we anticipate that will reduce our effective rate to approximately 39.5% for fiscal 2003 and consequently the tax rate utilized for the December quarter was 39.5%. On backlog, moving onto backlog and pipeline we have historically only provided backlog information on an annual basis.

However given the overall environment we think it's important to provide you at least with some color on backlog. As note immediate this morning's press release our backlog remaining strong and consistent with what we reported last quarter. With that I will turn the call over to David.

Thanks, as Rich discussed we reported revenues of $132.7m for our first quarter of fiscal 2003 and earnings per share of 47 cents which are in line with census. As indicated in this morning's press release our performance for the quarter once again speaks to have based the recurring revenue and long standing customer relationships which have helped us maintain strong a market position in difficult times. Despite a challenging environment characterized by significant delays and contract signings we have been successful in winning new business and expending into new markets offsetting the softer demands we’re seeing in other parts of our traditional business.

Some key contracts ask and re-bids wins over the last months are as follows. Last week we announced signing of a state wide justice solutions contract worth $13m with the commonwealth of Massachusetts trial courts. Project includes customization of proprietary court and view software to support all court divisions includes probate, family, civil, juvenal, superior district housing and land courts as well as the Boston municipal court. This wind builds on the divisions awards last year for state wide systems in Nevada and Alaska we now have an install base over 300 court sights nation wide with more coming.

We also continue to build market share in our health services group with enrollment broker services. We were awarded $2.9m two year contract by the commonwealth of Virginia to provide Medicaid, manage care and enrollment services . Contract contains two options for renewal both of which are two years of length.

This was a competitors re-bid that we won. MAXIMUS is also awarded $6.7m contract extension in Maryland for Baltimore in Queen Anne's county. To continue to provide child support enforcement services, we have been providing child support enforcement services for the last three years, contract was scheduled for sunset under prior democratic administration but is now planning for re-bid in late spring.

We also won a key re-bid with the Tennessee department of human services for five years $6.6m contract continue to operate full service child support program in the state 28th judicial district. Our ERP business continues to have success in the marketplace with an [inaudible] for chairman award with the state of Indiana and people soft implementation in Shallam (ph) county Washington state. These two awards total about $5m. We've also won several other small re-bids set in total that account for roughly two and-a-half million.

Some new and growing areas we are entering in fiscal year 2003 are as follows. First school base system K through 12. Currently in negotiation with a large school system for implementing our school max for proprietary software for district wide -- we are discovering our product is competitive and we are strengthening our sales force. We believe there will be significant growth in this area during the year. We recently reassigned division experience president to take over education services to manage the growth. Federal government initiative with their new COO David Johnson we are now going after the marketplace. It may take time to penetrate we are receiving positive feedback on our efforts.

We have been teaming with high profile partners to go after strategic wins and are confident we have much to offer and will be successful. Voting systems. All 50 dates are required under law to replace un-equated punch card systems and share access for the disabled at all voting places and implement state wide voter registration systems. MAXIMUS has partnered with and established election services firm Heart enter(ph) Civic to deliver comprehensive voting solutions to certain counties. We are pleased to announce a large county recently voted to award Maximus a direct record electronic voting system contract with a value of over $20m.

We expect the contract to be signed by the end of the month when more details will be forth coming. The scope of the contract includes voter out reach and education as well as training to support to pole workers and election staff. This is a promising market with high level demand. As we gain experience we can forge new partnership and opportunities with state and municipalities as they seek to modernize their voting systems. From our perspective there is opportunity for growth.

In terms of acquisition we completed small acquisition for manage am consulting. Leading private provider of child support enforcement services in Canada. Their core business of program design and implementation and program management strongly complements our domestic child support business. Although the deal is small the acquisition gives us foothold in the Canadian market with a company that has a solid reputation, long standing track record and strong management team. In addition, there say strong call center expertise that we can leverage in this country.

All this translates into a complementary opportunity that allows us to extend the geographic reach of Maximus. We are also stepping up plans for other acquisitions we are currently reviewing candidates that will help consolidate position in existing markets or enter peripheral markets where we can add substantial value. The acquisition currently under consideration are in the $10 to $50m range, I might add our forecast does not include acquisitions. Over the last three quarters I talked about infrastructure development. We have now implemented three new infrastructure systems that are in place.

A marketing tracking system, a goals managing system and red flag financial reporting system. We believe these systems provide MAXIMUS to infrastructure the scalability we need to support a larger company. We are also beginning to build more formal sales organization as well as seeking an executive vice president for human capital who will over see all our efforts in recruiting and retention for development manage and staff.

I'd like to briefly touch on each business segments for you. In consulting there has been softness in certain areas over the last several quarters. Other areas have been stronger and as we move into the second half of the year we expect that revenue based consulting such as child welfare RevMax and school base claiming increase. We remain encouraged by the pipeline activity. Our outlook for health services has unchanged since last call and we continue to anticipate modest growth in 2003. We experienced moderate scope reductions under certain programs such as scale back to mailings and advertising and generally these types of reductions can be somewhat unpredictable.

On the positive side we have won the key renewal contract in New York state providing enrollment services. President Bush's new Medicare proposal provides prescriptions drugs for seniors requires enrolling and manage care which is our core competency. Similarly his proposed Medicaid reform this states greater latitude and how the operate their program suggests more enrollment in managed care. Such realignment usually creates new opportunities which MAXIMUS is well positioned to address.

In terms of state health care government budgets it's too early to tell what the implications are for MAXIMUS but in California only minor implications for our large enrollment contract resulting from elimination of adult dental care and more restrictive eligibility requirements. There maybe even some upside changes to all of this. Human services our traditional markets have been the most impacted by state fiscal conditions. We have directed our resources toward maintaining our market shares by winning key re-bids and branching out into adjacent markets.

For example human service division partnered with our systems groups to deliver comprehensive voting solution packages for state and counties mentioned earlier. Human services team will concentrate on voter outreach education and training as it relates to our voter system initiatives. Other related markets include child care system development and payment processing where we have been successfully operating a system for state of Georgia and county in Florida We have taken that foundation and expanded it an effort to gain additional traction. We just signed a contract with Vermont to develop and deploy a child care system utilizing new Maximus J2EE human services application framework. We are really focused on the long term prospects of child care.

The outlook for our system segment positive as the pipeline remains particularly active in areas such as ERP solutions and justice solutions. In addition to the contract win with Massachusetts courts we recently won multiple contracts totaling more than $20m for court use software across many jurisdictions. These include district of Columbia Superior Court and Chester county Pennsylvania. Our justice solution team has made major progress in expending our capabilities and we are merging as one of the dominant players in the court system market.

Moving onto our marketing pipeline and looking into the future a total opportunities remain strong at $849m at the end of the quarter. Signed contract wins for the quarter total $119.3m. New contracts were awarded non-signed were $92.8m. The total opportunities in the pipelines were $849.3m precisely broken-down with $349.3m in proposal spending $126.4m in proposals and in preparation and $373.7m in RSP tracking. I mentioned unusual contract signing delays that we have been experiencing, as such we believe it makes sense to be more conservative in reporting new contract wins.

Going forward we will include only new signed contracts and our contract wins total excluding any awarded but not signed. However we will continue to provide both items of data in addition to pipeline detail such as proposal spending and proposals in preparation and RSP tracking. Our guidance for this year as Rich told you remains steady. States have entered what I would call the first stage of solving budget shortfall. The governor’s transition teams are developing initiatives that will have immediate impacts. We are working with these teams and suggesting initiatives that will not only quickly help alleviate the budget crisis but also achieve longer term solutions as well.

Once the new administrations are fully operational we believe more contract opportunities for reducing cost or expanding revenues will surface. So as we look forward, we believe a balance view is appropriate. We must balance enthusiasm about with the uncertainties brought on by the environment-- particularly the economic landscape.

We believe our original guidance for fiscal 2003 is still achievable. But we are more comfortable at the lower end of the range. Although our earning per share were 47 cents may be unchanged from a year ago MAXIMUS is a different company now, a stronger company with significantly enhanced infrastructure and a stronger management team.

Our growth in the last year has not been visible in our financial statements but that growth has taken place, is undeniable and significant. That's why we're encouraged. It's fair to say we are not satisfied with our growth and therefore you and we cannot be satisfied with our performance our optimistic outlook has to be tempered with reality.

We need to demonstrate we are a growth company to and you become more disciplined in our performance and more focused on our mission. We need to show significant growth on bottom line and I can assure you that the entire management team at MAXIMUS is dedicated to that effort. With that I'd we'd like to open it for questions.

At this time if you would like to ask a question, press star one on your phone. To withdraw a question from the queue press the pound key. Please stand by for our first question. Our first question is from Bill Loomis of Legg Mason.

Hi thanks. Couple questions. One, what was of the organic growth rate in the quarter? Two, I know you gave full year guidance but when we look into the second quarter I see a much easier comp (ph) on revenues. So what can expect as far as sequential growth in revenue in the second quarter.

Bill, the growth -- this is December over December. Total growth was 2.4%. Organically 3.8 percent. As to guidance for the March quarter, our belief is that the March quarter will be slightly moderately improved over the December quarter that would be up-line and bottom line.

Okay and a final question on the -- the mentioned a lot of repeat wins you had. What was amount that you did not win in the last quarter.

You may recall in the last call we told you we had 20 re-competes during the year. During the quarter we settled six of those re-competes and we won all of those re-competes.

Thank you.

Next from Nick Trotman of Adams Harkness and Hill.

Last quarter you said you were 70% booked on fiscal 03 revenue estimate. I was wondering if you could update us where you stand now.

We can do that we will not share with you full detail on the backlog information etc… But it’s largely in line with what we told you at the end of the quarter meaning the pipeline is full to the same extent.

Does that mean that, it's essentially the same, 306 million?

I think we’ve told you we have 70% of the year in the backlog and the metrics are in line with that.

Okay so it's still about 70 %.

That's correct.

Okay. And could you talk about this acquisition, what sort of revenue contribution you expect over the next few months and any incremental earnings from that.

The earnings are about $3m and the profitability is fairly low so we don't expect much in terms of profitability.

We would expect to be neutral plus or minus slightly to fiscal 03 and from a revenue perspective, approximately $10m per year.

$10m per year in revenue but only $3m this year.

About $3m -- Tom, you want to –

Tracing back to the exact date I would say it’s about $3m. What the acquisition really was targeted towards was acquire strategic capability to help us in our call centers and contact centers resided as oppose to specifically within the acquisition state income [inaudible]

And David’s comment on $3m is referring to the quarterly revenues.

Okay, and can you give year over year numbers for contract activity. How do those numbers look last year proposal spending and proposal preparation.

Sure. In terms of first quarter 2002, we had $334m in proposals pending versus $349 this year. $52m in preparation this year versus 126, and 721 in sorry 335 in R P tracking versus 373 this year so fairly comparable.

All right. Okay great. Thank you very much.

Our next question comes from Larry Lee of CIBC world markets.

Good morning guys. A couple questions. One on the systems group. You commented you were seeing strength out of the justice solutions area. Do you know roughly how much does justice solutions comprises from total system revenue.

Larry we are going to shy away from giving you divisional components to the segment information.

Okay next, last quarter I know you guys commented you have seen a lost activity going through your proposal centers which had contributed to SG&A margins being high. Did you see that activity keep up and what's the implications for the margin in the fiscal ‘03?

The propose center is full as we speak. And but the staff there is same staff, so there isn't a proportion at increase in cost.

Okay and are you guys still continuing to add in head count and if so, where -- what areas particularly.

Not really add in head count expect we are continuing to strengthen the management team. So we are looking for people as I mention immediate my comments.

Great thanks guys.

Next question from Jennifer Childe of Bear Stearns,

Good morning. Is there change in your revenue forecast in order to get to the low end of $2 and 5 cents should we assume revenues and margins will be equally or is one going to be stronger than the other.

I would lean to the low end of both ranges that we previously provided on EPS perspective as well as a revenue perspective.

Okay could you give us DNA and capitalized software for the quarter please?

We capitalized $585,000 during the quarter of software cost with depreciation and amortization -- we're digging out the DNA number we'll come back.

Do you know the capital number for first quarter last year also?

We simply have $19m for the full year, how it went by quarter we don't have immediately available but I think it would ramp up toward the mid of the year and level out.

Can you update on the New Jersey contract?

The New Jersey contract is going well. We had some extremely well and certain edibility determination of proving our performances, still it is a difficult contract-- it's moving although.

Is it profitable.

Yes it is.

To close on the D N A question total for the quarter was $2.46m.

Thanks.

Our next question from Colin Gillis of RBC Capital Markets.

Hello everyone. Wondering if we can get a sense about RevMax contribution as a part of the consulting segments?

RevMax I'm not going to give you quantitative answer but he continued to perform in respectable fashion. Again it's a solid contributor to profitability. And we have very positive aspirations for RevMax practice.

If you look at operating margins by segment, it looks like health management group had strong up-tick. Can we talk about the drivers behind that maybe the New Jersey family care contracts and other factors and sustainable 16% type range?

That is one of the reasons plus similar contracts that are performance based and unusual amount of enrollment activity in some of the contracts so that boosted revenues.

Unbilled receivables up-tick with that's related to the milestone contracts we were discussing about earlier?

[inaudible] related to the milestone contract, that's the big driver.

Thank you.

Our next question from Tom Mar of DB&T Capital Markets.

Yeah Good morning, I basically have two questions. First about your school base system and in particular what the school max product what need that fills for your clients and secondly could you be more specific on the federal government what areas are you specifically targeting there in longer term.

In terms of school base products it's a software aimed at helping administration of schools Kindergarten through 12th grade. One of it's unique features is build with district in mind so it's not a single school system but a district school system that manages multiple schools. We're finding that it's very competitive. We're doing very well with it and continuing to enhance it. We're move telling to J2EE environment. It's very positive.

It’s fair to classify it as more ERP type system an other words HR and some other things in there such as modules.

They are there as well as recording grades and communicating with parents school cafeteria. There's a demo at schoolmax.net. You can look at it there.

Thank you and then the federal government?

The federal government we're focusing on big deals and working with teaming partners I’ll let David Johnson who is with me here tell you more about it.

Just briefly we’re focusing on civilian agencies as opposed to the defense or Intel area, secondly probably two primary areas. One is in large out sourcing opportunities multi year opportunities to take advantage of strength we have with MAXIMUS and also program management opportunities that are out there in predominantly the system area.

Are these more health care related. Or in line with your current business or?

All segments,

All segments, okay so let me ask you obviously there is concern out there in the investment community about the fact that the ’03 appropriations bills haven't been signed. Specifically the 11 civilian agencies. Have you seen that have an impact on your margining efforts at all?

No since federal has not been a major emphasis on the company in the fast with our entry into the market we are being viewed as refreshing addition to the market so far.

Thank I very much.

Our next from questions comes from Dana Walker from Calmar Investments (ph).

Good morning. Would you tack about the human services operating margins in that gross margin in year over year seemed to hold its own. And seemed to be of both revenue and gross margin to Q4 but operating margin did decline.

Glad to do that Dana. [inaudible]We had this quarter was contract that was not renewed. They are brought it in house. We had expected that they would ramp it down so that we would have revenues throughout the quarter but in fact they just turned off the referral so we were stop with $800,000 in additional cost that quarter we had not expected so that dropped the margins.

What implication does that have on go forward basis?

It's over with so that shouldn’t happening.

So those cost will disappear. Yet are there any other gross profit implication in terms of revenue disappearing or is that just a benefit to you?

No, everything is closed out for that quarter we’ve have taken account of anything that's folded into our forecast.

So human services profitability aught to bump up?

Yes.

Head count is up about 500 year over year and roughly 200 from the end of the year. Are both of those numbers boosted by the two good size acquisitions?

That's true. Yes.

That's all I have thank you.

Our next question from Neil Gagnon from Gagnon and Securities (ph). .

Actually it’s Ben Atkinson with Gagnon Securities, and I have question. Q1 orders for $119ms revenues were $133m does that mean backlog declined and were there and cancellation of backlog.

Backlog hasn't declined. In terms of cancellation of backlog there have been some cut backs at the margins on some of our projects. But I think the total over the year would be something like $10 to $12m. But to that extent yes.

Thank you.

Our next question from Rodney Hathaway from Heartland advisors.

I was wondering if you can give us general outlook with state budget situation across the country being red and how that has factored into your forecast for this year to next.

We basically built our forecast from the bottom up in terms of looking at -- they're all based on contracts we have and specific opportunity in front of us. There is always an unidentified component of the forecast and we try to estimate how large that identified component can be. We do that by looking at wins that we have and didn’t identify in the past year and we have a [inaudible] on that-- we are assuming that in terms of next year forecast that things stay pretty much the same way they are.

As far as you mentioned that some of the project or the R P's in process been pushed out a little bit due to budget constraint -- has there been any acceleration in current business contracts that have been cut back because of budget constraints.

We have seen cut backs. For example Connecticut health care project, the child health care was cut back. We had a small contract up there that would get cut back as result. But the cut backs have been more not whole sale elimination of programs but just reductions in the budgets of some programs.

Okay just one other question on the -- you talked about the upgrade and revamping of the state voting systems. Can you give us awe sense of what size market opportunity that is for you over the next year and-a-half, two years?

This one contact was $20m and we're in the finales on another one about the same size. States and counties jurisdictions will be rolling out more R P's. It could be fairly substantial. I hate to put a specific number on it -- but as Said we have been noted that we awarded one for $20m. There could be another one about the same size. Could be I’m not sure.

Are you seeing any competitors in that stage?

Yes, we’re kind ever a new player in this space our partner Heart Inner Civic (ph) has been around for 50 years. So it’s a good teaming arrangement with them and their contacts and established based on the field also their machines with MAXIMUS knowledge of working with the public for registration and education and things like that.. But Debold is a major competitor there. There’s another company there E S S electronic systems I guess. So it's not wide open but again we have been successful in a large county which is encouraging.

now is this more a one time type business opportunity or are there recurring revenues and contracts once you put in these systems?

I think the equipment, the hardware installation component is one time, but they need -- registration assistance helping pole workers. Every time there's an election their going to need assistance. So it's more like H R block where their peak period are time when assistance is needed but they are reoccurring.

Thanks.

Our next question from George Price from Legg Mason.

Hi. Thanks for taking my call. I guess first question would be if you could give your contract mix in the quarter cost plus CNN et cetera?

Our contract mix in the quarter -- bear with us one moment was 36 percent performance days, 32 percent fix price, 20 percent cost plus and 12 percent time and material.

Okay and in terms of DSO's obviously there's seasonality and further impact on milestones but I realize you talked about the next few quarters and how those milestones would shake out. But can you be more specific in terms with what you think DSO's are going to trend toward over the next couple quarters.

I don't know that it's practical to be more specific. We believe five to95- 105 say normal operating range approximate we will continue to emphasize management efforts to pull it down and periodically report fewer DSO's but we will have situations that will pull it north and again as we talked in our last call, Newark will have a tendency to pull DSO north and that's what we saw in this quarter when two of the ERP programs came on board really toward the end of the last year and in initial stages employ it's exactly that type of situation we're speaking to. So to model that is not practical at this time.

So -- I guess it sounds to me like we shouldn't expect dramatic improvement in the next quarter.

That's a fair starting point.

Okay and I guess in terms of what the states doing to address the budget shortfall, mentioned new governors are in and starting to figure out ways to phase one to address budget, there's a lot of talk about tax hikes. New governors coming in and have the opportunity to raise tax in that first year. Is that seem like it's potentially going to take any pressure off or is that -- are they still going to have to continue to look for cuts to bring the budgets -- I don't know what you're hearing from the different states?

Last option they want to take is raise taxes. They are dipping in the rainy day fund they are putting slot machines at race tracks. We have a program with 10 initiatives that we sent to the governor’s transaction team that describe how to raise revenues or cut costs. We believe that they can -- while they -- we're not going to solve their budget crisis, while there will be cut backs, some of the services that we provide they're protected employ and at least the administrative fees are protected.

In California the dental program. That does not affect us because we administer the whole program. It’s just a portion of the labor that we put into it. So the cut backs don't hit us proportionately, yet our opportunity to help them alleviate the crisis, we can benefit by that and convince them the program we are offering them will save them money and increasing revenues.

Final question. You're guiding us to the low end of EPS range for low end of revenue range EPS 205. What aught to happen to for you to fall short of that? If you can just talk qualitatively in terms of trend, what we should be looking out for?

I think what would make us fall short is unexpected event that takes place. But our expectation is there based upon our analysis but you know as we proven we're not perfect and the unexpected has happened there's further deterioration and that could hurt the number.

Okay thank you.

Our next question from Arnie Ersner from CJS Securities.

Actually Charles Strauzer from CJS and Securities. Couple quick questions. You touched about Australia can you highlight what happened at all how is there economy impact your outlook [inaudible]?

In Australia our we're working now on re-bids. They have contracts about 30 our 40 percent up for re-bid. We should find out by the end of March Our projects are doing well we’re finding new opportunities in Australia as we anticipated and we’re working on those. We're pleased with what we are finding down there.

And the performance in the quarter was up or in line with lines of expectation or below?

slightly below.

[inaudible] Can you comment on utilization of your [inaudible] in your quarter?

The utilization for the quarter was pretty much in line with historical trends. You adjust it seasonality but it's pretty much where we expect it in the company overall blend for the company tends to be in the 65 to 70 percent range.

Talking about the 70% number your guidance of backlog, do you feel comfortable with that, does that also above or below where you usually are in this quarter Typically 70% is a good starting point when you give out guidance [inaudible]?

Correct.

Is that 70 % now in the quarter slightly below your [inaudible] at the end of the first quarter.

If I understand your question you're saying as it relates to the remaining three quarters in of the year, how much that was is in the form of backlog, we simply run a 70 percent on analyzed basis see that factor necessary that trailing quarter if you will. So if you pull in three quarters the remaining three quarters will be higher but net algorithm is consistent with where we were at the end of the September quarter.

And regards to where you were at the end of the fourth quarter last year, are you about the same point where you are right now or behind that?

The company did not measure that metric or record that metric last year so that's a new metric.

Thank you very much.

One again to ask a question press star one on your phone and next we have a follow up from Bill Loomis.

Hi, on the consulting side we have had the lowest gross margin in a while in but SG&A costs don't look like they were cut. Is that a one quarter issue or cost cutting initiative in the consulting group.

Your observation is correct. In a consulting group. And again we dynamics in cost and sales in SG&A so we tend to focus on the operating margin. But the operating margin sequentially year over year for the consulting group did go down.

That really was -- we got some pieces of that business that continue to do quite well and we had softness which would have been in the areas of IT consulting forward large system implementations and that business does have seasonality as well as competition plays a role in that business. I would tell you they know they continue to watch their head count and match head count to work in that area but we didn't have significant risk if you will in the quarter.

So how should I look at that 15.5% operating margin? Is this figure going to end up to low 20.’s or are we going to be in that area going forward?.

If anything look for upside in that segment.

But no one time issues like you mention immediate human services.

I don't think so.

Okay thank you.

Next we have Kristen Cooper from Lehman Brothers.

Just two housekeeping questions for you. Do you have the quarter head home office head count figure available?

We do.

Because you knew I'd ask.

The home office number at the of December was is 202 compared to 204 at the end of the fiscal year?

And you mentioned depreciation and amortization for the quarter. Can you give them as separate components.

We’ll do that. I think they are about equal. $1,225million and $1,240million.

Thank you very much.

We have n further questions that the time I'd like to turn the call back over to management for concluding comments.

I thank for joining us today. If you have additional questions as always you can give us a call for follow up thank you.

))OPERATOR: That completes today's conference please disconnect your lines. Call ended at 11:22 a.m.--- 0