Q1 2021 Maximus Inc Earnings Call
Greetings and welcome to the Maximus fiscal 'twenty 'twenty, one first quarter conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as a reminder.
This conference is being recorded.
Now my pleasure to introduce your host Lisa miles senior Vice President of Investor Relations for Maximus. Thank you Ms miles you may begin.
Good morning, and thank you for joining US today with me is Bruce Caswell, President and Chief Executive Officer, and Rick Nadeau, Chief Financial Officer, I'd like to remind everyone that the number of statements being made today will be forward looking in nature. Please remember that such statements are only predictions acts.
Cool events and results may differ materially as a result of the risks we face including those discussed in item one a of our annual report on form 10-K, we encourage you to review the information contained in the earnings release today and our most recent forms 10-Q, and 10-K filed with the SEC. The company does not assume any obligation to Reeves.
Pfizer update these forward looking statements to reflect subsequent events or circumstances, except as required by law.
Today's presentation may contain non-GAAP financial information management uses this information in its internal analysis of results and believes 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.
A reconciliation of the non-GAAP measures presented in this document please see the company's most recent quarterly earnings press release, and with that I'll hand, the call over to rich.
Thank you Lisa This morning Maximus reported revenue for the first quarter of fiscal 2021, which increased 15, 6% to $945 $6 million.
Revenue for the first quarter was in line with our expectations.
Our revenue growth was principally driven by new work related to the Covid pandemic response, where Maximus continues to play an integral role in contact tracing disease investigation vaccination support unemployment insurance programs and other key initiatives.
For the first quarter of fiscal 2021, our Covid response work contributed approximately $160 million in revenue.
As expected top and bottom line growth were offset by ongoing impacts of the global pandemic tied to program changes on volume based contracts that were implemented at the direction of our customers.
As we discussed last quarter, these changes, including halting Medicaid redetermination in the United States are designed to ensure the beneficiaries have uninterrupted access to vital government benefits during this global health crisis.
Total company operating margin was nine 3% for the first quarter of fiscal 'twenty 'twenty, one diluted earnings per share were $1 three per share both operating margin and earnings were in line with our expectations with some variability by segment.
Our operations outside the United States delivered results favorable to our expectations, which offset lower operating income from the U S. Federal segment due to the timing of finalizing a contract which will now be recorded in the second quarter.
Let me review segment financial results in our typical order starting with U S services first quarter revenue in the U S services segment increased 23, 3% to $384 $9 million.
While revenue growth was driven by an estimated $114 million of Covid response work. The operating margin was depressed by temporary program changes and lower revenue from performance based contracts as a result of the global pandemic.
Operating margin for the U S services segment was 16% for the first quarter as discussed last quarter. We continue to experience a significant revenue and profit headwind, resulting from lower volumes on some of our largest Medicaid programs.
As a reminder, many state customers are currently utilizing enhanced U S. Federal matching funds for Medicaid However, they must adhere to certain conditions, including a pause in Medicaid redetermination to ensure beneficiaries have continued access to vital health care services during the global public health crisis.
Those redetermination of <unk> are a significant level of activity within certain programs we operate.
Our full year expectations for the U S services segment remain unchanged with a 16 five to 17, 5% full year margin predicted revenue for the first quarter of fiscal 'twenty 'twenty one for the U S. Federal services segment increased 10, 6% the four of $5 $2 million the census contract contributed.
$60 million, which was $10 million less than the prior year ex.
Excluding the census contract organic growth for this segment was $13 five per cent and driven principally by an estimated $46 million of revenue from Covid response work as we continue to provide needed support the government.
In responding to the pandemic this.
This includes work with the IRS supporting the cares Act, which as a reminder is the first time. The IRS is used contracted the agents on this large of the scale.
The U S. Federal services segment had approximately $4 million of revenue and profit shift out of the first quarter due to a delay in executing a contract.
It has been signed and we will record the benefit in the second quarter of fiscal 'twenty 'twenty one the.
The operating margin was seven 5%, which was slightly short of our expectations for a strong first quarter in this segment.
Our full year expectations for the U S. Federal services segment remain the same with a 6% to 7% full year margin predicted.
Looking to the second quarter, including the aforementioned $4 million of revenue and profit we will recognize the segment's margin is expected to step down.
This illustrates how we continue to have more overall variability in results due to the pandemic.
We are pleased to have secured Covid response work the backfill some of the temporary shortfalls created by reduced volumes revenue and profit from accretive performance based contracts.
Revenue for the first quarter of fiscal 'twenty 'twenty, one for the outside the U S segment increased 11.5% to $155.4 million organic growth, excluding the effects of currency was a four 8%.
Operating income for the segment in the first quarter of fiscal 'twenty 'twenty, one was positive $4 $5 million for an operating margin of 2.9% the.
The better than expected result for the quarter was primarily due to job placement activities in Australia, driven by a seasonal spike in demand for qualified job seekers.
As Australia started to emerge from the pandemic during our first quarter employers needed the quickly fill many retail and travel related jobs during the busy holiday and travel season.
The Australian team did an extraordinary job in successfully managing this influx of demand, but we view this seasonal spike as unique to the first quarter of fiscal 'twenty 'twenty. One we continue to see strong demand for employment services in all of our international operations. We've had positive developments since our last earnings call related to.
Increasing demand and rising volumes for employment services.
We anticipate that volumes from current programs, most notably in Australia, and supplemented by new work will drive revenue growth in the second half of fiscal 'twenty 'twenty one.
It is important to note that the new work consists of outcomes based arrangements for employment services. They are designed to ensure the contractors can be held accountable and incentivize to achieve the job placement and retention outcomes that matter to government.
This new employment services work drives our revenue estimates upward, but these programs are expected to generate losses in the early stages. However, we target operating margins within our desired corporate average over the life of such programs.
We presently estimate that these startups will put the outside the U S segment in a loss position in the second quarter with steady improvement through the remainder of the year. We now expect that the segment will be approximately breakeven for fiscal 'twenty 'twenty one.
Maximus enjoys a long history strong reputation and demonstrated success in delivering employment services.
We believe the investment required will position us for favorable economics over the life of the contracts, which outweighs the temporary adverse impact in profit for the remainder of fiscal 'twenty 'twenty one.
We believe such programs are a good avenue to create substantial long term shareholder value.
Let me turn to cash flow items and the balance sheet. We had no draws on our corporate credit facility at December 31, 2020, and $132 $6 million of cash and cash equivalents cash.
Cash from operations and free cash flow of $98 $1 million and $89 million, respectively were strong and contributed to our already strong balance sheet DSO.
DSO was 75 days at December 31, 'twenty 'twenty compared to 77 days at September 32020.
Let me touch briefly on capital allocation, while we generally operate under in the essential provider designation, we remain aware of budget pressures impacting our customers. However, with our corporate credit facility and the aforementioned strong cash flows and balance sheet liquidity is not of concern.
We continue to have a bias toward M&A as a means to drive long term organic growth or M&A program continues to evaluate prospects, while we remain prudent stewards of capital and selective in our evaluations.
Our strong balance sheet good cash from operations provides us good access to capital to fund acquisitions, we remain committed to future quarterly cash dividends and share purchases will continue to be made opportunistically. While it is still early in the year recent award scope increases and contract extensions have provided us with cautious optimism.
As we consider our full year guidance.
As a result of these positive developments, we are raising our full year guidance for fiscal 'twenty 'twenty one.
For the full year, we expect revenue will now range between $3 4 billion of three $5 billion to $5 billion for fiscal 'twenty 'twenty, one driven by new work in support of government's ongoing response to Covid.
Additionally, we expect diluted earnings per share will range between $3 of 55 cents and $3.75 for fiscal 'twenty 'twenty one.
Our fiscal 'twenty 'twenty, one cash from operations are projected to now be between $350 million and $400 million and free cash flow between $310 million and $360 million.
Our expectations for our effective income tax rate is between $25 seven five per cent and 26, 5% and for weighted average shares to be between $62 1 million and $62 2 million as we have long said, we often experience fluctuations in our quarterly financial results, which has only been exacerbated by the <unk>.
Pandemic. However, the management team aims to provide as much transparency into our work as reasonably possible.
So based on what we know today, we still expect a decrease in revenue and earnings for the second quarter of fiscal 'twenty 'twenty, one compared to the first quarter.
Current second quarter consensus estimates show revenue of $773 million and diluted earnings per share of 73 cents at the present time, we expect to be above consensus revenue and earnings estimates for the second quarter.
Consequently, fourth quarter consensus revenue of $875 million and diluted earnings per share of of dollar too.
Our above our current expectations, while the new Covid response work is providing a short term positive tailwind it has shorter periods of performance than our core contracts.
As we have cautioned previously there is no assurance that the tailing off of the positive impacts of the Covid response work will coincide with the return of our core contracts to previous volume and performance levels.
Our bottom line continues to be somewhat tempered by unfavorable headwinds related to the pandemic and the temporary changes on mature core programs, most notably in the United States and the United Kingdom.
The result has been a reduction in accretive revenue, which continues to timber operating income margins and diluted earnings per share, we anticipate debt as we emerge from the pandemic. Many of these programs will begin to return to historical volume levels factor.
Factors such as the end of the public health emergency declaration in the United States and when we resume face to face of settlements in the United Kingdom are particularly important to the pattern of expected recovery the.
The effects of budget challenges further relief packages and other changes in policies or legislation or some but not necessarily all factors that can impact our assumptions for fiscal 'twenty 'twenty, one and beyond.
I would like to end by saying the Bruce and I are proud of the team at Maximus for remaining on track to deliver solid performance this fiscal year.
Following the outbreak of Covid there were many unknowns that we had to work through.
Loans remain we are not free from the impacts of the pandemic, but we are of solid footing, which gave us the confidence to raise guidance.
And with that I will turn the call over to Bruce.
Thank you Rick and good morning, everyone last month Maximus announced the planned retirement of our friend and trusted colleague Rick Nadeau.
While we still have a few more earnings calls before his departure I wanted to say that it has been an absolute privilege to work alongside Rick for these many years and I wanted to thank him for his endless commitment and invaluable contributions during his time at Maximus.
David Butyrin Senior Vice President of Finance will assume the role of CFO effective December <unk> 'twenty 'twenty, one I look forward to working with both Rick and David over the next nine months as we continue to execute our corporate strategy.
With the election of President Biden, we're cautiously optimistic regarding the stated policy initiatives from the administration and the potential favorable tailwind that may be created for companies like Maximus.
The administration has already taken actions to increase access to affordable insurance for Americans through the Affordable Care Act and Medicaid.
Over the course of the administration, we will likely see a meaningful increase in funding for social welfare programs and of course public health programs.
Improving access to affordable health care is a top priority of the Biden administration and the President has advocated building upon the affordable care Act among other measures to broaden coverage options for Americans.
Additionally, as we navigate through the pandemic. We believe we will see further policy initiatives that strengthened the public health infrastructure and a corresponding effort to more broadly support vulnerable populations.
President Biden has already expressed intent to tackle these challenges and indeed many of his early executive orders looked to expand the public health work force to provide vital services to individuals.
Our results. This morning illustrate that Maximus is well positioned to help government add capacity and address critical public health needs now and into the future.
While it's still early days and they buy the administration, we're cautiously optimistic that the areas. We have seen emphasize thus far will be reflected in subsequent budget and legislative priorities that set the stage for capitalizing on opportunities to partner with government and helping to achieve their policy initiatives.
Our Covid response work as a Prime example of the demonstrated value of our services and the relationships we've developed with our clients.
And the time of unprecedented challenges we are grateful to have earned the opportunity to provide needed assistance.
These contracts have served as the revenue driver offsetting some of the unfavorable impacts on operations that are experiencing of pandemic related temporary slowdown or pause.
Initially our COVID-19 work centered around more immediate pandemic driven needs such as contact tracing disease investigation and unemployment insurance programs.
Our work has expanded as government demand has increased into new areas, we launched efforts to support states and responding to public questions about vaccination registration scheduling and administration quickly efficiently and equitably.
We have hired several thousand employees to support these state and local efforts.
At the federal level as you know we also operate the C. D C helpline known as C. D. C. Info. We recently added another 150 individuals as we scale up our operations yet again to answer questions regarding vaccinations.
Supporting several states and the C. D. C. We are the most experienced government partner in the market to provide vaccine administration citizen services. Additionally, our U S. Federal services segment scaled up to 3200 agents from 1500 to support the I R. S. With the next round of the economic incentive payments further in order to.
Prove the user experience and drive efficiency, we implemented our interactive virtual agent system in response to the increased demand.
As Rick noted, we're also experiencing increased demand for our employment support services around the globe.
The economic impacts of the global pandemic have left many unemployed and the need of vital support in finding work.
It is important to remember that the pace at which different countries are emerging from the pandemic varies widely some countries have progressed further and managing the spread of the pandemic and are now turning their attention to tackling the many residual challenges, including the economy and unemployment.
<unk> has a proven track record in delivering employment services and an earned reputation as a trusted long term partner, who delivers outcomes that matter. Our continued investments support our position as a partner of choice over the long term outweighing any temporary and short term profit impacts in fiscal year 'twenty 'twenty one.
While the Covid work itself is comparatively short term in nature crisis support itself has a longer trajectory.
While this pandemic was certainly unprecedented this is not our first nor last call to action and the time of public health or economic crisis, we will continue to be there to support our clients and citizens in times of need with critical services and solutions are.
Our work is portable adaptable from agency to agency and Department to Department, whether it's the I R. S. C. D C FEMA state health departments or others around the world, we adapt from crisis to crisis, whether of global health pandemic of natural disaster or economic challenges.
Along with the launch of Maximus public health, we view, our capabilities and contingency planning for our government customers and the rapid implementation of citizen assistance services as a core competency and elemental to the long term relationships that underpin our business.
Looking outside of the pandemic I've previously talked about our solutions that are authorized under the federal risk and authorization management program or fed ramp of.
Our fed ramp certification meet the most stringent security requirements of federal agencies, as we aim to deliver innovative and cost effective cloud based solutions that support mission objectives and provide the highest quality citizen services, thereby transforming the user experience.
We feel that a survey of government technology leaders across federal state and local agencies to gain insights about where agencies are in their cloud adoption journey and how they perceive the use of fed ramp authorized cloud solutions to support their modernization and transformation initiatives.
The vast majority of respondents recognized the benefits from moving to of fed ramp authorized solution beyond adhering to mandates.
The survey further affirmed our solid positioning to provide a range of fed ramp secure cloud solutions as well as our clients' demand for this service.
I will now turn to new awards and pipeline as of December 31st.
For the first quarter of fiscal 'twenty 'twenty, One signed awards were $594 million of total contract value at December 31.
Further at December 31, there were another $1.14 billion worth of contracts that had been awarded but not yet signed.
Let's turn our attention to our pipeline of addressable sales opportunities.
Our total contract value pipeline at December 31 was $31.6 billion compared to 33 point O billion dollars reported in the fourth quarter of fiscal 'twenty 'twenty.
Of our total pipeline of sales opportunities, 71.1% represents new work.
I want to reiterate the continued difficulty in predicting the impact that the global health pandemic may have on our pipeline timing of new work and returned to previous operational levels. However, our strong reputation flexibility and agility has cemented our position as the go to partner for government.
We have navigated the administration transitions for decades, and we firmly believe that the foundation is laid for continued opportunities to assist governments through these extraordinary times.
I wanted to wrap up my comments today, reflecting on the events and protests that occurred in January at the U S capital in Washington D C and in other areas of the country like many of you I was shocked and saddened by these events Max.
Maximus engages in the bipartisan political process in order to better understand our government clients long term goals, our board's nominating and governance Committee has oversight of the company's policies pertaining to political contributions and compliance.
We remain committed to the fundamental principle of our engagement in the political process, which is and will continue to be to never support or fund candidates or elected officials, who encourage or support violence against the government of the United States and.
And one final note before we open it up for questions the macro trends for our business remain unchanged as the pandemic has underscored governments around the world the better solutions to deliver on policy priorities that can change rapidly.
Social welfare programs that reflect long term societal commitments and priorities increasingly face rising demand shifting demographics and unsustainable program costs.
Maximus is well positioned to address these challenges and be a transformative partner, we offer scalable cost effective and operationally efficient services for a wide range of government programs. We continue to believe our portfolio mix of core business near Adjacencies and new growth platforms will allow us to achieve a healthy growth trajectory.
For years to come.
And with that we will open the line for Q&A operator.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue. You May press star two if he would like terminals of your question from the queue.
We asked of you limit your follow up questions to one so that others may have an opportunity to ask questions. You may re enter the queue by pressing star one.
So of participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Thank you. Our first question is from Brendan Pops and with CJS Securities. Please proceed with your question.
Good morning, I just wanted to ask real quick on the the draft is out on the the C. C O. The.
Sorry of the draft RFP for one hour of Medicare and just the any surprises there or any thoughts on that.
Hey, Brendan it's Bruce good morning, and thanks, Thanks for the question yes.
We're pleased to see that that the procurement is progressing and you know really person per schedule and to see the RFP out and I would just off of your two notes one is the.
The scope of services that's reflected in the RFP is consistent with the current scope of services and work that we do per CMS and secondly, it's a it remains a single award procurement, which we think is a reflection of.
The comfort that CMS has had in administering the contract with the single vendor and they intend to do so going forward.
And the other question.
Great. Thank you yeah, just a follow up.
You talked about some of in the prepared comments with the the new administration coming out of but could you provide any detail any more color or detail on the impact of recent executive orders from the new administration that any new opportunities or or just the or even just expanded opportunities on what you currently do.
Sure Brendan let me yeah, let.
Let me give you a little more color interestingly there was an executive order that the that obviously.
Created very early in the process here to reopen the health care Dot Gov for what's known as the special enroll the enrollment period of SCP and that will take place between February and May 15th.
As you likely know individuals can already purchase policies at health care Dot Gov outside of the open enrollment period, when they have certain qualifying life events.
The special enrollment period is adjacent now to adjust ended open enrollment period and it seeks to provide asset access to individuals who would otherwise not qualify with qualifying life events. During this time.
It because of its proximity to the recently ended open enrollment period, the pool of potential enrollees is likely smaller than if it were two of occurred later, however that means it'll be really the uptake will be a function of outreach in advertising and awareness efforts and we note that HHS is committing $50 million to such efforts.
I was reading a bit more about this the Kaiser family Foundation estimates that nearly $9 million of the remaining uninsured Americans could qualify for free or subsidized coverage under the special enrollment period, and Theres, an additional $6 million that could qualify per unsubsidized coverage. So again marketing and advertising is going to be critical from a state.
Perspective state based marketplaces, and I make this up because as you're aware of we have the privilege of providing call center support for the federal marketplace in the state that remain on that also for a number of state customers States are encouraged but not required to offer similar special enrollment periods and many are going ahead and doing that so it can mean for maximus.
We think the given all of these dynamics of the guidance range that we've established that Rick spoke to in his prepared remarks are likely covers the potential tailwind that could be created from the executive orders.
And obviously the effects of efforts to increase marketing and advertising and so forth will go well beyond the may end date of the special enrollment period, and likely would manifest themselves and higher volume of enrollment in the next open enrollment period in the fall.
Okay health.
Okay, great. Thank you for the detail I appreciate it.
Thanks, David.
Yes.
Okay.
Our next question is with the Richard close from Canaccord Genuity. Please proceed with your question.
Great can you hear me, Okay first of all the spine, Richard Hope Youre doing well.
Thank you rich congratulations.
Looking forward to the next couple of quarters with you or three quarters.
Congratulations on the retirement.
Thank you so yeah. So Rick first just a quick.
Housekeeping and I appreciate the information with respect to the senses.
And Covid.
But.
The 13, 5% organic growth in federal.
Unless I'm doing the math wrong, if I back out the 60 million net per census, this year and the 70 million for last year I'm getting like the 16.4%.
Organic growth.
The number not taken into account the COVID-19, but.
Am I missing something there or is there an acquisition and the.
Acquisition or something else that you're backing out to get to do the 13 point Bob.
Yes.
Good question.
Yes, we're backing out the effects of that CQ a contract that's about four 4% the organic growth from other contracts is 12.5% and the disposal of the businesses.
Is the is 0.4%.
So all of that together is of 16, 5%.
Change.
Okay.
And Richard.
The thought we're going to file our form 10-Q right. After this call.
And in those calculations are in the M. DNA, we actually have kind of roll forward from the and we do it by segment, we do a roll forward of the three months revenue ended December 31, 2019, two three.
Three months ended December 31, 'twenty and we'll show you the effect of the <unk> contract, which I think you're basically right. It was 16 70, so about a reduction of $9 6 million.
And then the amount of the disposal of the business. That's a business that we had of a potential conflict of interest or of perceived conflict of interest with with other work that we were bidding and we were asked to dispose of it with the rest of it being organic.
Okay great.
I just figured there were some other moving parts in there.
Bruce.
Wanted to talk a little bit about the read the the re determinations.
Obviously.
The secretary as our extended the public emergency.
Think into April I'm, not sure of the specific day.
But then the results so speculation.
From the by the administration I think there was the letter sent to some individuals about maybe extending the public health emergency.
Through 2021.
I'm curious your thoughts on reading the Redetermination this weather.
If the emergency does get extended.
Are there opportunities that the states, they're getting the F.
Map.
Funding, but is there opportunities were re determinations began.
Or are they would they be extended all the way into 2022 of.
So Richard I'm going to pick that up and just the second but first I wanted to return director he could clarify something from your prior question.
Yeah, Richard I think I read the percentage from the wrong column I read the revenue correctly, but what it is is we went from $3 66 571 of revenue to 405 $2 45.
For 2020.
Uh-huh C. QA contract did go down $9 6 million and the disposal went down 1.1 that gives you an organic.
Growth of 49.4%, that's 13, 5% $49 4 million. So that gives you a 13.5 net so those that's the clarification of the Arb, sorry, I was reading of the gross profit.
Richard the correct numbers on the dollars and I read the percentages from the gross profit.
I apologies, maybe no doubt.
David I'm getting a little.
[laughter].
I don't know.
Pull that forward.
Well the wisdom is priceless so let me go to the public health emergency.
Yes.
You're absolutely right acting secretary of health and human services ignores Cochrane set of letters governors on January 22nd on it.
The easy to find and I'll quote premise, saying to assure you of our commitment to the ongoing response, we've determined that the public health emergency will likely remain in place through the entirety of 2021. When the decision is made of terminate the declaration of our letter expire HHS will provide the day to 60 day notice prior to termination so based on that it seems like the handwriting.
Things on the wall at the same time as you know we need to continue to work with our customers to get their guidance too because on the one hand. This would lead to further likely further suspension of certain words, such as eligibility redetermination and so forth, but on the other hand, the prolonged condition that would unfortunately caused the sustainment of the public health emergency.
Thereby enabling states of qualifies as you've also noted for the six 2% enhanced F map would suggest that at least certain COVID-19 related response work would continue well through the end of the current fiscal year.
So given all of these considerations when Rick and I looked at our guidance range, we felt that it's wide enough to accommodate multiple scenarios and the public health emergency to be clear remaining in place for the entirety of fiscal year 2021.
Would likely result, with us being a bit more in the middle of the fairway. So we always say, it's kind of hard to predict COVID-19 work and interestingly.
Some of the temporary headwinds and program changes that we've seen relate to the public health Emergency for example, the pause and re determine Richard terminations is clearly linked to the maintenance of effort requirement for Medicaid to ensure individuals' remain enrolled and that the qualification requirement for the enhanced enhanced funding so unlikely right.
The state's wood.
Unless they are willing to give up that enhanced funding the.
Began redetermination or other kind of the program administrative actions.
You know prematurely. However, there are other programs that we administer for example, the.
Debt management program for federal student aid or outside the U S. The hottest program that arent linked to this public health emergency so our guidance kind of accommodate all of those last thing I'd say is that the secretary of retains a great deal of discretion not just in the declaration of the public health emergency and when it's over but also discretion to selectively modify.
The terms of it to reflect conditions and policy priorities as they evolved so.
All I can tell you right now is that we feel the guidance range. We provided you know is the accommodate these vary the variability and we'll take guidance from our customers and respond to the conditions that they dictate.
For the administration of the program.
Okay. Thank you I appreciate everything you're doing for the states and federal government or in this time. Thanks.
You bet. Thank you.
The question please.
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Our next question is from Donald Hooker with Keybanc capital markets. Please proceed with your question.
Thank you good morning, everyone.
So I was curious.
On your slide seven you guys commented on the highlight that you think you can get the kind of of 10% to 15% operating margin.
Which is obviously a ton of upside in that out of the U S segment.
When when the can you time scope out a bit this the.
Just remind us kind of when would that margin potentially be achieved.
Thanks, Bruce and I do want to note that the commentary on page seven I'll begin and then I'll hand, it off to Rick the commentary about the 10% to 15% margin is over of programs life in the illustrative program as employment services programs right. So you have to consider the portfolio of contracts that we have outside the U S.
As you think about the long term margin dynamics for that business, but I'll, let Rick.
For the commentary.
Sure. Thanks.
Exactly what the what Bruce said I think the the simple chart on that page tells the story when we go through and we're considering how the beta program.
We have to respond to the the request for proposal that sitting in front of us and what really winds up happening in most cases is that the cost that you incur are relatively flat over time, but you build volumes throughout the program's life and so accordingly, what winds up happening is that your costs are steady, but your revenue.
Grows over time, so in the early parts of the program you're negative you have negative operating income and you can see the area under the the straight line shows you a negative NOI for the for the first periods of the program and then that builds and so what we do is we try to make sure that when we price the work.
Debt when we put all of the periods together that we're having an operating income margin. That's in the 10% to 15% range, which is the average that we seek for the work that we bid that is fixed price type of work does that help you.
Yeah, I guess I was kind of put you a little bit on the spot in terms of you guys I understand that's not the entirety of the outside of the U S segment, but you guys.
We're talking about a breakeven margin in the outside of the U S segment on the when you talk about a 10% to 15% margin for the.
These employment contracts, which of which the big part of the outside of the U S segment and would that be like fiscal 'twenty two of fiscal 'twenty three I mean, what is the.
I don't know if you can sort of time scope out of it will take a couple of years to get there I mean, how does the that is a big jump in operating margin, even if it's not all of the segment I would certainly have a material impact.
Okay.
If I can get any clarity around how quickly that could ramp.
Sure well I think that it's pretty obvious that the outside of the U. S segment is a segment that's been most damaged during the pandemic we've had over 50% of the work that we do outside the U S. As unemployment services and close the economies in Australia, and the United Kingdom have been very detrimental to listen in that.
Regard.
So I think that when we look forward and come out of the FY 'twenty, one and look into FY 'twenty two little all of these will be somewhat dependent on the pandemic further.
We have a big program in the United Kingdom.
Where we were scheduled to do 780000 face to face of assessments in this last contract period and and we're doing none.
That cost contract is profitable, but not at the level that we would of projected if we were doing those those face to face assessments. So I think that the return to open economies in Australia, and the United Kingdom. Some of the new geographies that we're working on with employment services, a return to normality in the United Kingdom for Wawa in the us to do.
Those face to face assessments and those new contracts that we talked about are all tail winds it ought to be able to allow us to improve the operating margin outside the U S. Over time I can't sit here today in Columbus, you, what that's going to be in FY 'twenty, two but it will be an improving oi margin profile over time.
Okay I'm not sure if I got the that's my follow up or not but maybe.
Maybe I'll follow up.
Many of you one really quick one.
You guys detailed the sensus revenue was in the fiscal first quarter than December quarter what.
Kent can you remind us and I apologize I missed it what would that ramp down to them in the March June and September quarters.
So we have sort of set expectations, yes.
The program is very close to being over its in the heavy wind down period, I think youre going to see less than $10 million of revenue going forward from January one two.
2021 forward.
Okay. Okay. Good luck with the horizon.
Thank you.
Thanks Donald.
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Okay.