Maximus Inc (MMS) 2015 Q1 法說會逐字稿

Greeting and welcome to the MAXIMUS Fiscal 2015 First Quarter Conference Call. At this time all participants are in a listen-only-mode. A question-and-answer session will follow the presentation. (Operator Instructions) As a reminder this conference is being recorded. I would now like to turn the conference over to Ms. Lisa Miles, Senior Vice President of Investor Relations. Thank you. Ms. Miles. You may now begin.

Good morning. Thank you for joining us on today's conference call. I would like to point out that we posted the presentation on our website under the investor relations page to assist you and following along with today’s call. With me today is the Chief Executive Officer, Rich Montoni; President, Bruce Caswell; and Chief Financial Officer, Rick Nadeau.

Before we begin, I'd like to remind everyone that a number of statements being made today will be forward-looking in nature. Please remember that such statements are only predictions and actual events and results may differ materially as a result of risks we face including those discussed in exhibit 99.1 of our SEC filings. We encourage you to review the summary of these risks and our most recent 10-K filed with the SEC. The company does not assume any obligation to revise or update these forward-looking statements to reflect subsequent events or circumstances.

Today's presentation may contain non-GAAP financial information. Management uses this information in its internal analysis of results and believes that this information may be informative to investors in gauging the quality of our financial performance, identifying trends in our results and providing meaningful period to period comparisons. For reconciliation of non-GAAP measures presented in this document, please view the Company's most recent quarterly earnings press release.

With that, I'll turn the call over to Rick.

Thanks, Lisa. This morning, MAXIMUS reported first quarter revenue of $467.0 million a 15% increase compared to the same period last year. All gross in the quarter was organic an both segments delivered topline increases driven by new work and the expansion on existing contracts. Revenue was unfavorably impacted by currency exchange rates predominantly but not exclusively in the Human Services segment. On a constant currency basis total Company revenue would have grown 16% over the prior year. For the first quarter of 2015 operating income totaled $65.2 million and the Company delivered an operating margin of 14%.

Our tax rate in the first quarter was lower than expected at 36%. This was due to the extension of the work opportunity tax credit at the end of December with retroactive application to the beginning of calendar year 2014. For the first quarter net income attributable to MAXIMUS totaled $41.9 million or $0.63 per diluted share. First quarter diluted EPS increased 29%, compared to $0.49 reported for the same period last year.

The first quarter of fiscal 2015 benefited from $2.4 million of incremental revenue and profit in the Human Services segment, that was previously expected to occur later in this fiscal year and provided an uplift of approximately $0.03 per share. In addition, the lower tax rate provided approximately another penny of earnings. Overall, another solid growth quarter.

Let's jump into results by segment. Starting with Health Services. The Health Services segment delivered strong operational and financial results and performed largely inline with our expectations. Revenue in the first quarter grew 18% to $351.7 million compared to the same period last year, fueled by organic growth resulting from new work and the expansion of existing contracts.

As a reminder this segment's fiscal Q1 benefits from seasonality tied to the open enrollment period under the Affordable Care Act. This year's open enrollment began on November 1 and runs through February 15. Thus far call volumes have largely been inline with our client service plans.

Our Health Insurance Exchange operations are at peak staffing levels during open enrollment to support the increased volume of calls from consumers, who are shopping for health insurance. Therefore, investors should expect the Health Services segment to be seasonally stronger in the first quarter of our fiscal year.

Health Services segment operating income in the first quarter of fiscal 2015 grew 21% to $50.4 million compared to the same period last year. For the first quarter of fiscal 2015, operating margins for the Health segment were 14.3% and higher compared to the same period last year. The segment's operating margin benefited from some expected accretive change orders. These change orders helped offset the expected start up of certain new health contracts as well as the anticipated volume decreases in our Medicare appeals business that resulted from changes to the Recovery Audit Program, also known as RAC.

As a reminder coming into this fiscal year we had already assumed significantly lower volumes in our appeals business as a result of these changes. All in all another solid quarter from the Health Services segment.

Let's turn our attention to financial results for Human Services. The Human Services segment was adversely impacted by changes in currency, most notably due to the weakening of the Australian dollar. The impact in the first quarter is approximately $5 million, unfavorable to revenue on a constant currency basis. The Canadian dollar and the British pound continued to significantly weaken throughout the month of January. Accordingly, we expect this segment will continue to be affected by currency exchange rates. For the first fiscal quarter, revenue for the Human Services segment increased 7% to $115.4 million compared to last year. However, on a constant currency basis, the segment's revenue would have increased 12%. Revenue growth in the quarter was driven by the Company's international operations, including the recent reallocation of work in Australia.

First quarter operating income for the Human Services segment increased to $15.5 million compared to last year. The segment's operating margin increased to 13.4% for the first quarter of fiscal 2015. The segment benefited from approximately $2.4 million in revenue and income than was previously expected to occur later in this fiscal year. Excluding this, we estimate that operating margin would have been approximately 11% for the first quarter of fiscal 2015, which is typical for this segment.

Moving on to cash flow and balance sheet items. Cash flow in the fiscal first quarter was strong, driven by increased earnings and good receivables collections. As expected, DSOs improved on a sequential basis to 58 days in the quarter. We expect DSOs to increase to a more normalized level during the year, mostly due to some of the new contracts coming online most notably the two new health contracts in the United Kingdom.

For the first quarter of fiscal 2015, cash provided by operating activities totaled $56.6 million and free cash flow was $42.5 million. As a reminder, free cash flow was defined as cash provided from operating activities, less purchases of property equipment and capitalized software.

During the quarter, we purchased shares of MAXIMUS common stock under our Board-authorized program. In Q1, we repurchased approximately 753,000 shares for a total of $30.6 million. At December 31, 2014, we had $104.6 million available for share repurchases under the current program. As a reminder, our buyback program is opportunistic in nature. At December 31, we had $149.2 million in cash and cash equivalents of which approximately 30% were held outside the United States. The strength of our balance sheet provides us with a great deal of flexibility in deploying capital and we are focused on sensible deployment of cash. In addition to buybacks and dividends, we continue to manage a strategic acquisition program.

At any given time we often have a number of opportunities in the pipeline. We run a rigorous due diligence process and we are highly selective, but M&A continues to be an active and large component of our cash deployment in growth strategies. And lastly guidance, as noted in this morning's press release, we are reiterating our fiscal 2015 revenue and earnings guidance. We still expect revenue in fiscal 2015 to range between $1.9 billion and $2.0 billion and earnings per diluted share to range between $2.25 and $2.40 despite ongoing weakness in currency exchange rates outside the US.

As I mentioned earlier, the Canadian dollar and the British pound continued to significantly weaken throughout the month of January. So looking at our guidance, the currency exchange rates at January 31 would indicate the tempering of revenue of approximately $45 million and operating income of approximately $4.5 million or $0.05 per diluted share. This compares to the exchange rates that were assumed when we completed our forecasting in October.

We're also maintaining our cash flow guidance for fiscal 2015. We still expect cash provided by operating activities to be in the range of $165 million to $190 million and we expect free cash flow to be in the range of $100 million to $125 million.

Thanks for joining us this morning. And now I'll turn the call over to Rich.

Good morning and thank you, Rick. Our solid performance for the first quarter of fiscal 2015 sets a good path for the remainder of the year and beyond. In my remarks today, I will share updates since our last call. Let's start off with our Health Services segment. We have updates for both our US and UK operations. In the US, our Affordable Care Act teams are wrapping up the activities tied to the second open enrollment period for what's referred to as OE2, which runs through February 15, 2015. As expected, the overall open enrollment period was much smoother this year with fewer technological challenges and the benefit of applying the lessons learned. We collaberated with our client's early planning as this year brought new challenges like renewals for the first time. We also launched agressive refresher training in many of our locations to ensure that our staff will well prepared to assist consumers.

As Rick mentioned thus far overall call volumes across all of our centers have been running largely as expected

mainly due to the benefit of early planning. We found the overall renewal process to be fairly straightforward in

the markets where the carriers remain largely same or there weren't major changes to the plans. New York is one example where open enrolment has gone particularly well.

The States marketplace remain very stable from both the plan, selection and cost perspective, which clearly played an important role in ease of use for consumers.

I've a couple of observations to share from some of our centers. In general, we noticed an overall increase in

consumer awareness related to eligibility in enrolment. We're also just starting to receive calls related to the

new tax forms that are being mailed out. Public health insurance exchanges and recovery individuals are acquired

to some ACA-related tax information and forms. So far about half of the calls we've received are informational in

nature and the other half related to incorrect information on the forms themselves. We haven't seen a dramatic

uptick in volumes as a result of the tax forms, but it's still growing. This could change as tax payers start

completing their returns in anticipation of the the April 15 filing deadline.

As you know, MAXIMUS operates five state-based exchanges plus the District of Columbia. In addition, we also operate

two customer contact centers for the Federal Marketplace as a subcontractor. As reported in the media recently, we've

started the process of ramping down one of our federal customer contact centers that being Boise, Idaho. Our

two-year contract is scheduled to end later this year, so this was an expected closure and was fully contemplated in

our guidance. At this time, Boise is the only contact center we are closing. We also continue to work closely with states

that may be considering a potential move off the Federal Marketplace to their own state-based exchange.

Realistically, we likely won't see a lot of movement until the Supreme Court renders decision on the King versus Burwell case, which is expected later this year. It's speculative as to what the outcome might be and what effect it may have on states decisions to operate their own exchanges. Nevertheless, there continues to be interest from states on how to better manage the continuum of programs for the uninsured.

As we look to the future, we see the 2017 state innovation waivers provided under Section 1332 of the Act, may prompt more states to consider new ways to manage their uninsured populations. The innovation waivers provide states with additional flexibility in how they manage their insurance markets. The waivers could be an attractive option to governors who want to manage federal funds to implement state driven ideas that are more closely aligned to state specific policies, demographics, insurance markets, budgets and culture.

The waivers also give states a way to deal with some of the Act's principal structural and operational challenges. For example, they address the continuation of care as individuals between provider networks when their income, family composition or age changes. The waivers also allow states to become centers of innovation as they structure their employer-sponsored insurance and assistance in the purchase of private health insurance. In fact, MAXIMUS will be hosting a live event tomorrow at noon to discuss new approaches that states can take for the design and operation of their health insurance programs.

Our event features some of the Country's leading policy experts, all of whom have broad expertise in implementing and managing programs for the uninsured. We're really excited to help states understand how the waivers will bring them new flexibility as they design and implement sustainable approaches to the public health programs.

Overall, as we've said in the past, the Affordable Care Act is a multi-year driver for MAXIMUS and we believe the ongoing opportunities to help states manage their myriad of health benefit programs will continue to provide us with ongoing tailwinds for years to come.

Moving on to our health operations in the United Kingdom with the team is hard at work on two new contracts. The Fit for Work program is well underway. We launched phase one in December and are now working on phase two. The second new UK health contract is the Health Assessment Advisory Service, formerly known as the Health and Disability Assessment Service.

Under this contract, MAXIMUS is conducting assessments for individual seeking certain disability benefits according to the rules set down by Parliament. We are working towards addressing some of the challenges that exist today, but recognize that it will take time to improve key aspects of the customer experience. One of our primary goals is to increase the overall number of healthcare professionals to support the program, particularly those who specializes in mental health and those who understand fluctuating health conditions.

Over time, we strive towards the longer-term goals of reducing the long lead times, improving the quality of the assessment and making the assessment process less intimidating for customers. We are presently on target to take over in March, nevertheless it's important for investors to recognize that the overall policy remains controversial in the United Kingdom. Therefore, we do expect ongoing media coverage for this program.

Let's move onto our human services segment. Here, we have positive news to share from our US welfare-to-work operations. In Tennessee, we were successful in a large re-bid for the families first program where we've been a provider since 2007. As part of where we did, we also secured additional scope and are expanding into seven additional counties. We will now be providing appointment in case management services to 36 of the state's 95 counties.

Under the new contract, we expect that we had a little triple with the annual run rate going from approximately $5 million to $15 million. Congratulations to the team for job well done. Since our lass call, we also received some additional good news from the United Kingdom where we picked up our first reallocated region under the work program. We began delivering employment services to job seekers in the North East Yorkshire and the Humber region just last week. This reallocation recognized our strong performance and hoping to successfully guide individuals of benefits and into work and contributing to a stronger local economy.

And finally, we've submitted our responses to the job services Australia, we did tender. As we've said in the past, we don't expect a winner take all award, but rather awards that are done on occasion -- by occasion basis. We expect to hit results in the spring and remain cautiously optimistic about this important re-bid.

We'll be on to new awards in the pipeline. At December 31, 2014, the year-to-date sign awards were strong at $1.3 billion. This include the UK Health Assessment Advisory Services contract. We also had an additional $169 million in new contracts that have been awarded, but not yet signed as of December 31.

Our sales pipeline remain very robust at $3.6 billion at December 31, 2014. The overall composition of the pipeline and is fairly broad with opportunities across the multiple geographies in both segments. It also includes both rebids and new work. The strength of our pipeline services as further confirmation of continued demand for our services. And as a reminder, our reported pipeline only reflects opportunities where we believe the RFP is expected to be released in the next six months.

So, in conclusion we had another solid quarter under our belt. We are positive about our progress in fiscal 2015. Our collective efforts to secure new work expand existing contracts, and stand-up new programs demonstrate our ability to deliver and meet commitments to our clients and the citizens they serve.

We believe demand for our services will continue as governments require partners to help them manage benefit programs more efficiently and effectively, to address rising caseloads, and implement performance-based metrics to achieve the outcomes that matter.

In summary, we've set the table for solid growth in 2015 and beyond and remain most excited about our future prospects. And with that, let's open it up for questions, operator?

Thank you. (Operator Instructions)

Charlie Strauzer, CJS Securities

Rich and Rick Nadeau, but if you guys expand little bit more on the impact on currency. Obviously, there was an offset in the quarter and probably there going to be offset going forward there if you guys kind of stay where it is, can you explain what the quarter and come up with positive offsets to that?

Charlie I would be glad to talk about that. And you're right Rick did talk in his prepared remarks about the currency impact -- the adverse currency impact in the quarter and the expected impact for the year. And in terms of offsetting that, and as you know there are always puts and take in the portfolio, but we were fortunate in this quarter that the amount of work we are doing relative to the affordable care act, is a bit stronger than we had expected. You may recall that we expected this year to be down versus the prior year. We had estimated the amount of the down graph would be the territory $50 million to $100 million of less work this fiscal year. It's acutally coming in better than we had expected. So, that's the good news that offsets the currency aspects and allows us to maintain our current guidance on a go-forward basis.

Great, and then just one follow-up question, when you look at the UK work program, I believe you are going to starting to approach your kind of your bonus payments for performance. And are you on track to kind of hit those goals and it reminds us again and is that a lumpsum payment or is that spread out more evenly over time?

That program is the mix of a fixed payment or front-end fixed payments and we amortize the front end payments over a period of time and then the contract I view is largely pay for performance and reoccurring pay point, so it performs month to month. I don't have the impression that there is a big payment due at any time in the future. I think it's just a steady stream program.

Great, thank you very much.

You got.

Richard Close, Avondale Partners.

Yes, Rich, I'd get your opinion on state Medicaid expansion. There's been a lot of I guess anticipation in terms of states expanding Medicaid, Tennessee voted yesterday not to I guess in one of their committees. So thoughts on does that impact MAXIMUS at all going forward?

Good morning, Richard. I think it's a great question and the concept of Medicaid expansion has been one, as you know that's been wondered about I'll say for several years running and we see sporadic actions or inaction and you did mention Tennessee. I will let Bruce Caswell, who is here with us today to share with us his thoughts on this one.

Sure Richard and good morning. You are right. There has been a lot of movement from a wavier perspective. With the Republican states, there are currently 27 states in the district of Colombia that have expended Medicaid and probably seven to nine Republican states that are looking at expansion alternatives. Notably, while Tennessee has put forward a plan to CMS for a waiver that would have provided to that expansion. Indiana has actually received that waiver ahead of Tennessee. That is interesting from two dimensions. The Indiana waiver for the first time allows the state to have kind of a personal responsibility component and that is like a recipient co-payment or premium cost sharing for individuals below 100% of the Federal poverty level, which was not something that CMS historically was willing to grant.

Secondly, it allow that the benefits can be denied for individuals like dental and vision benefits. So wrap around benefits not core Medicaid benefits. If the benefits share themselves, falls behind in their share of the payments. So lot of folks are looking more toward the Indiana model as an example of something that could be replicated successfully in other Republican states. We continue to keep an eye on it and I think we said for sometime that Medicaid expansion is a long-term trend something that will play out over the course of probably the next four to five year just as the initial implementation of the Medicaid program took many years before there was forward option.

And I would add to that Richard that certainly benefited from the Medicaid expansion that's correct to date and certainly we should benefit from any incremental additional expansion in those states where we serve as enrollment broker or chip administrator. And I think that's 20 at this point in time. Correct, Bruce?

Yes that's right. And in fact Rich to your point, there was some recently released data that suggest in states that have expanded Medicaid, the Medicaid roles have increased to about 25.5%, and for those that haven't, there are still been a wood work effective about 7% increase in Medicaid. Operator?

Brian Kinstlinger, Maxim Group.

I guess I'm curious, how many states, the number (inaudible)can you say the specific states are you in discussions with about transitioning to state-base exchanges given the Supreme Court case? And I'm curious, are they more democrat legislates given they're probably in opposition, and then with a lesson you've learned in the past, how quickly can in state today move from a federal exchange to develop, install, and be ready for enrolements on a state-based exchange?

I'm going to hand this over to Bruce in a minute, but I think it's a three-part question, Brian,

So, I won't ask a follow-up?

Many states are we in discussion with, and Bruce would probably talk about how many are we monitoring. And secondly, are they more democratic, and then thirdly the lessons learned on how quickly United States would be able to transition.

Great question. So, first of all, I think there are 34 states in the federal market place presently that will be affected by the King Browerville [ph] decision. And it's notable that there, depending on which estimates you looked at, up to 5 million individuals that are currently receiving subsidies in those market places that would be effected in those states.

And in addition to that, the thinking is that, if those subsidies were removed, obviously there would be an increase in premiums. Rand Corporation in fact estimates the premiums would increase in the individual markets up to 47%. That effect alone could be stabilized to remainder of folks, and drive up to another 1 million folks out of the market places. So, there is a lot of stake here, you're right.

Consequently, we're looking at all the states that obviously would have to do something, and choose to do something. I believe it is in fact the case that nine of those states that are in the 34 have actually passed legislation, that would prohibit them from presently establishing a state legislative exchange. So, barring some new legislation that would open the door, that would leave the remaining 25 or so as potential transition states.

When you look at those, there are 11 states that have actually weighed in affirmatively on the Supreme Court case, asking the court to sustain the payment of subsidies in the federal market place. We think that there would be toward the concept of setting up a state-based exchange, and that brings me to the last part of your question, which is how hard is it and how long would it take. They're probably -- well there are couple elements that very quickly. The first thing is that the mechanics for granting federal money to the state to set up an exchange expired in November 2014. And that would be the actual establishment grant funding window closed. So that would have to be re-opened in some way.

Secondly, you could see -- you'll see a scenario under which the federal government would work to extend the technology platform to the states, and the states would correspondingly have to set up their own customer contact centers. So some type of cloud-based or service-based technology platform would probably be the most expeditious way to make the technology available. However, there are other states out there, Maryland being an example that have transfer technology from more successful states like Connecticut that we may look to more of a consortium model.

So, I would think in the end, you'll see a blending of approaches with an emphasis by the administration to try to expedite that, but the reality being with the court decision in June and the way the law is currently written, states have to pass an important certification date 6.5 months prior to going live. So we would make it very challenging for this next open enrollment period to get a state-based exchange in place. Does that help?

Yes. Super helpful.

Brian, I would add one footnote to that. There was an article in the Washington post this morning that was interesting in this context. And it was really about a republic and then last slam that's being waked up in the event that the outcome of this supreme court cases adverse. So it's interesting to monitor -- the key points they won, the key points they won, its' very very dynamic and we should expect other alternatives to popup. But at the end of the day, we do believe that there is going to have to be some form of supported healthcare program out there.

Thank you.

Next question please.

(Operator Instructions) Frank Sparacino, First Analysis.

Hi guys. I'm curious on some of the UK and all the work that you're doing there, obviously, you have lot of clinical expertise may be more so here on the US. But I'm just curious when you look at the US marketplace and some other things that you're doing in the UK one part of you, those services are very relevant here and just curious on some of the potential opportunities here or even outside of the UK on a more global basis?

Good morning, Frank, I think that's a great question. I think it does have significant strategic relevance. We've maintained for quite some time a view that governments are more [tincture] and fiscal perspective and as the number of let's say applicants or the number of individuals because of increasing populations and the demographics within those populations, we need more people looking to their government for help that the intersection of those dynamics really will spark and motivate governments to have more eligibility hurdles and that will increase the demand for what we do. One of those subsets is one of those services is what we do and appeals and assessments. And we do see in the UK that's what's happening is that there is an increased need to do quality appeal and assessment work, most of the work we do over there is in the assessment category.

Here in the US, we do a lot of appeals work and we do sense that there will be an increased demand for assessments and/or appeals I think in Australia. We should expect that to happen and I do think here in the US as well. Other programs case in point would be social security and workforce compensation. The other dynamic is that we're seeing increased discussions as it relates to the disabled, including mental type situations as well. So, the industry is moving very much in that direction and I think it's going to provide increased opportunities for MAXIMUS.

Next question please.

The next question is from Allen Klee of Sidoti & Company. Please go ahead.

Hello, thank you for taking the call. Could you just speak a little to the work you've been doing to prepare for that Health Assessments Advisory Services contract and how that's going?

We'd be glad to do that Alan. Bruce why don't you tackle that one.

Sure. Allen good morning, I'd just say that as Rick mentioned in his notes we continue to work on ramping up for that contract. It has a takeover day or deadline of March 1. The teams are working across a number of work teams as you could imagine in conjunction with our client and we feel very much that it's going as expected. And Rich also noted that it remains obviously very sensitive program and topic in the United Kingdom. We expect continued media coverage in that area. And importanly as we've stressed throughout, we are not the company that determines outcome of an assessment. We effectively help prepare that assessment for final government base to make that determination .

Sure. Alan, good morning. Yes, I would just say that as Rich mentioned in his notes, we continue to work on ramping up for that contract. It has a takeover date or deadline of March 1st. The teams are working across a number of work streams as you can imagine in conjunction with our client and we feel very much that it's going as expected. Rich also noted that it remains obviously very politically sensitive programming topic in the United Kingdom. We expect continued media coverage in that area and importantly as we've spread throughout, we're not the company that determines the outcome of an assessment, we effectively help prepare that assessment for final government based adjudicator to make that determination .

Thank you.

You're welcome.

Next question please.

Thank you. Yes, the next question is from Richard Close of Avondale Partners. Please go ahead.

Great. I was wonder if you could give us an update on Australia, any type of competition, landscapes there with the JSA and then I guess just put context around optimistic there make us feel, maybe a little bit more comfortable with the opportunities in Australia for you guys?

I'd be glad to do that. When I think about the Australian rebid opportunity, we are a very significant provider under our existing contract. As you know, it's a large contract for MAXIMUS. I highly respect the procurement process that Australia has set up and follows rigorously, meaning that they follow their protocols very very tightly. They tend to award on performance and not price and naturally as you would expect MAXIMUS pays an awful lot of attention to its performance metrics and continues to be evaluated as a top provider in that country.

And I think that will go an awful long way towards the probability that we will continue to be a key provider in the rebid result, we expect to hear this, the results this spring. And I would really emphasize this is not an all or none situation. While it's large, it's, they will make the award region by region area by area. So I think it's highly unlikely Richard that a key provider like MAXIMUS is going to have a material loss of this situation. I'd like to think we have more upside than downside.

Okay. And a follow up question, just on the FX impact for this year. For modeling purposes, should we be looking at (inaudible)mid to upper single digit grower in the remaining quarters of this year?

Yes, I think so. And as you see the currency in Canada and in Australia are down more than 10% as compared to October at the beginning of our year. I guess I think your assumption on the growth rates make sense. Next question please?

(Operator Instructions) Brian Kinstlinger, Maxim Group.

Great, thanks so much. My follow-up first one is, I'm curious what you're hearing on the moratorium of inpatient stage for RACs and how and when your volumes might be impacted in your opinion?

Hey, Brian. Great question. And as I believe, the moratorium on auditing those inpatient stays based on the two midnight rule ending March of this year and we have for some time said that there is kind of a time lag or delay if you will between when the RACs can go out and start mining those claims again and what the lookback tax credit is, and ultimately when we see those as appeals, I think we've characterized that historically has probably a five months or six months delay. Oone other element to this is the extension of the current rack contracts at least through the end of this calendar year. So, we've tried to be very prudent in our forecasting of the volumes. And as you know, the Medicare appeals volumes are notoriously difficult to forecast and so we've really baked those volume effects into our full year guidance presently.

Great. And then can you maybe give us a little bit more detail on the pipeline? Is it the way you waited internationally, US maybe certain countries and I just told them the large opportunities that we've been spoiled to see that even so many of?

My take away on the pipeline is that it remains very robust, and I'm very pleased with the mix of what's in our pipeline and by that I mean two dimensions; one is how much is new work versus how much is re-bid, I'm very pleased with a very significant portion of that represents new work. And I'm also pleased that it really is across all of our business, not just domestic, not just international, but all of our businesses Health and Human Services alike.

Our final question is from Frank Sparacino with First Analysis. Please go ahead.

Rich, I just want to go back to early and then come around ACA coming in better than expected and I was wondering if you could be more specific as to where that upside is coming from? And then also related to that, what happens with the Texas call center, yes, I'm not sure how things sort of play out after open enrollment here events, but any idea as to when maybe next maybe the next kind of procurement cycle comes up?

I'll take the latter one in terms of the Texas call center and then I'm going to move this over to Bruce, in terms of why we give you some qualitative color, why only two seems to be stronger than we had expected. So on Texas call center, this is in Brownsville. One key point is, it really is an outstanding call center that has great capabilities and has done a good job and has received a number of extensions.

In the normal course we would fluctuate, but that would be the resources in these call centers to map them to the fluctuating demand, the seasonal demand related to the Affordable Care Act, we did that last year, we've done that this year. And as we move forward, I would expect that we continue to do that. We are working diligently with the client to find alternative uses for that call center and it may just continue to be available for the work to get the primary mission today in terms of supporting the Affordable Care Act.

Sure.

And Frank I answered your other question, but a little more color on the volume side. I just -- first of all I want to preface this by saying it's very much early days, right. We're really only about a quarter into things, and we, as Rich noted in his remarks, not yet seen the the potential impact of the 1095-A forms that are being sent out and so forth so as an important kind of top note to that.

But the effects are effectively driven by within the federal call center environment, obviously a decrease with the wind down of the Boise the customer contact center. But year-over-year, we've ramped up now to more of a steady state level, our eligibility appeals to support contract at the federal level. So, you see the two kind of offsetting each other with a bit of a positive gain.

And then also, you may have noted in the press that California was much more aggressive in preparing for this year's open enrollment period, and rather than relying just entirely on the state employees that it supported a program last year, they've reached out to the vendor community. So whereas last year in California, we provided just basically training for those state employees, this year, we've actually operational folks doing work related to the eligibility and enrollment process.

So year-over-year, that would be an increase for us. But, again I just note that it's still very much early days.

Next question please?

Richard Close, Avondale Partners

Great. Just a quick question here on guidance. First of all, if you could talk a little bit about the seasonality thought process on seasonality in terms of the remaining quarters, just remind us there, so we're not caught off guard? And then maybe if you can discuss a little bit more about start-up expenses, and the sling shot that you talked about in the past, and how we should think about that? I think you stated that you had some benefits in this quarter that offset some of the start-up expenses, and just how we should think about that in the remainder of our fiscal 2015?

Okay, let me try. Rick does going to take the one on the quarterly piece, and I'll chime on the sling shot piece. So, we did provide some specific quarterly earnings guidance on the last call, so let me reiterate that color and then add a little bit to it. We expect that the Q2 margin will be lower than the first quarter. We have start-ups that are hitting in the health segment as you referred to, some of those are non-recurring, further Q1 benefited from incremental profit that I won't repeat in later quarter.

In Q3, margins are expected to be higher than in Q2, that will be as a result of lower start-up costs, and we will start in that third quarter to get a full contribution from the new Health Assessment Advisory Services Contract in the United Kingdom. And as I mentioned on the last call, we have presently assumed that Q4 margins will be tempered as a result of the start-up of the new contract in Australia. So is that what you're looking for?

Yes. That's great.

And I'll jump into the slingshot. And in the slingshot discussions we've had in the past are not focused on -- the start-ups do have a ramification to the quarterly, the quarters in our fiscal 2015 as Rick has discussed. The slingshot discussions we've provided have been on full fiscal years and to remind folks on the call we have three contracts that are relevant here and we'll talk about the impact of these three contracts from a slingshot perspective.

Two of the contracts were in startup mode in fiscal 2014 and generated an aggregate loss of $0.04 in fiscal 2014. We estimate those in the start-up HDAS will actually contribute profit of $0.08 a share. So going from a loss of $0.04 to profit of $0.08 in fiscal 2015 versus '14 creates a slingshot effect year-over-year of a positive $0.12 and then we think those three contracts will generate $0.34 earnings per share in fiscal 2016. So hence, we have a slingshot -- favorable slingshot impact of $0.26 fiscal 2016 over 2015 relative to those three contracts.

Great, thank you.

Okay. You're welcome. Next question please.

Next question please.

Thank you. That was our final question. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation.