MAXIMUS Reports Increased Revenue but a Drop in Earnings for Fiscal Q2

MAXIMUS, a leading provider of government services, today reported results for its fiscal second quarter ended March 31, 2006. Quarterly highlights include:

• Second quarter revenue grew 17% over last year to $179.8 million,
• Net income for the second quarter was $8.9 million, or $0.41 per diluted share, which includes $0.02 of legal and settlement expenses,
• Days Sales Outstanding improved to 97 days at March 31, 2006,
• MAXIMUS generated cash from operations of $11.4 million in the quarter,
• Cash, cash equivalents and marketable securities totaled $175.1 million at March 31,
• Sales pipeline totaled $1.3 billion at May 2, 2006.

Revenue for the second quarter ended March 31, 2006 grew 17% to $179.8 million versus $154.1 million reported in the same period a year ago. The year-over-year revenue increase was driven principally by new work and contract expansion in the Operations Segment.

Beginning in the first quarter of fiscal 2006, the Company implemented FAS 123R on a prospective basis. As a result, net income in the second quarter of fiscal 2006 was $8.9 million, or $0.41 per diluted share, including the $0.02 and $0.04 impacts of legal and settlement expense and option expense, respectively. This compares to the same period last year of $9.5 million in net income, or $0.44 per diluted share and $0.39 per diluted share on an options-adjusted basis.

Richard Montoni, Chief Executive Officer, commented, “Financial results for the second quarter were as expected, excluding the legal and settlement expenses of $0.02. I’m pleased to be back at MAXIMUS and my return demonstrates my commitment to our clients, employees and shareholders. MAXIMUS enjoys a solid footing in the market and the potential for long-term growth is substantial.”

Consulting

Consulting Segment revenue for the second quarter, which represented 15% of total Company revenue, increased 11.8% to $26.4 million versus revenue of $23.6 million reported for the same period last year. Consulting Segment operating income for the second quarter increased to $3.0 million with an operating margin of 11.3% versus operating income of $1.9 million (which excludes stock option expense) in the same period last year. Revenue and income growth were driven by the Financial Services business as a result of approved revenue maximization claims and a child welfare compliance contract that was at full project capacity but is expected to ramp down in the remainder of the year.

Systems

Second quarter Systems Segment revenue, which represented 18% of total Company revenue, totaled $32.2 million versus $32.6 million reported in the second quarter of last year. Systems Segment operating income for the second quarter was $0.3 million with an operating margin of 0.9%, compared to operating income of $2.0 million (which excludes stock option expense) and operating margin of 6.0% for the same period last year. The decline in operating income compared to last year was primarily due the performance on a large system implementation project. This project is expected to improve with the commencement of new phases in the second half of the year. As a result, the Company expects improved financial results for this segment in the second half of fiscal 2006.

Operations

Operations Segment revenue for the second quarter increased 23.8% to $121.2 million, which represented 67% of total Company revenue, compared to $97.9 million reported in the second quarter of last year. Revenue growth was driven principally by the British Columbia Health Operations project which launched on April 1, 2005, $4.1 million of non-recurring hardware revenue related to a voter contract, and new work in the Health, Workforce Services and the Federal business lines. Operating income for the second quarter was $10.5 million with an operating margin of 8.7%, compared to the same period a year ago of $10.6 million (which excludes stock option expense) and operating margin of 10.9%. Second quarter operating margin declined on a year-over-year basis as a result of the British Columbia project and the losses incurred on the Texas project. On a sequential basis operating margin increased 280 basis points over the first quarter of fiscal 2006 driven by new work and the profitability improvement in the British Columbia project which remains on track for continued progress for the remainder of the year.

Sales and Pipeline Activity

Year-to-date signed contract wins through May 2, 2006 totaled approximately $292 million, compared to $628 million reported at May 3, 2005, which included the $268 million British Columbia award. New contracts pending at May 2, 2006 (awarded but unsigned) totaled $135 million compared to $452 million reported for the same period last year. Sales opportunities at May 2, 2006 totaled $1.3 billion (consisting of $494 million in proposals pending, $144 million in proposals in preparation, and $682 million in proposals tracking) compared to $1.1 billion reported at May 3, 2005.

Cash Flows, Liquidity and Dividend

The Company generated cash from operations totaling $11.4 million in the second quarter. At March 31, 2006, cash, cash equivalents, and marketable securities totaled $175.1 million. During the quarter, the Company repurchased approximately 138,700 shares of common stock and had approximately $24.4 million available at March 31, 2006, for future stock repurchases under its share repurchase program. The Company paid a quarterly cash dividend of $0.10 per share on February 28, 2006.

Outlook and Conclusion

For fiscal 2006, the Company still expects revenue in the range of $710 million to $725 million, however the Company is revising its GAAP earnings per diluted share to a range of $1.80 to $1.87. The Company believes this to be a prudent and conservative approach that considers reduced contributions from the Texas project and the timing of licenses and contingency-based work.

Mr. Montoni concluded, “My focus for the near-term is to optimize our existing business including improved project execution with an emphasis on quality and accountability. While we will aggressively pursue new business opportunities in an effort to continue to build our sales pipeline, we will be redirecting our sales efforts towards winning more profitable business and will be less volume driven in our approach.”