Q3 2021 Maximus Inc Earnings Call
Greetings and welcome to the Maximus third quarter fiscal year 2021 earnings conference call.
At this time all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host James Francis Senior Director of Investor Relations. Thank you Sir you may begin.
Good morning, and thanks for joining US with me today is Bruce Caswell, President and CEO, Rick Nadeau, CFO, and David Mitra, and senior Vice President of Finance I like to remind everyone that a number of statements being made today will be forward looking and nature. Please remember that such statements are only predictions actual events and results may differ materially.
As a result of risks we face, including those discussed in item 1 a if our most recent forms 10-Q and 10-K, we encourage you to review the information contained in our earnings press release today, and our recent filings with the SEC, including our quarterly report to be released shortly.
<unk> does not assume any obligation to revise or update. These forward looking statements to reflect subsequent events or circumstances, except as required by law. Todays presentation. Also contains non-GAAP financial information management uses this information internally to analyze results and believes it may be informative to investors in.
Gauging the quality of our financial performance identifying trends and providing meaningful period to period comparisons for a reconciliation of the non-GAAP measures presented please see the company's most recent quarterly earnings press release, and with that I'll hand, the call over to Rick.
Thank you James This morning, Maximus reported better than expected results driven by over performance of Covid response work as Maximus worked diligently to help governments respond to the worldwide health crisis.
Revenue for the third quarter of fiscal year, 2021 was 1 point to $4 billion and diluted earnings per share were $1.51. The companys operating margin was 11, 2% for the quarter.
Operating income margin is calculated after the expense for amortization of intangible assets, which increased significantly due to the 2 acquisitions. Excluding the amortization expense resulted in an operating margin of 12, 2%.
Covid response work contributed an estimated $460 million of revenue in the quarter, which was approximately $185 million higher than our projection for the third quarter.
And the profitability of this work has been steadily improving and now delivers operating income margins above our corporate average.
The C D C vaccination hotline contract and to a lesser extent the other Covid response work are responsible for the over performance in this third quarter cash.
Moving to response work has contributed $860 million of revenue.
On a year to date basis, and our full year estimate is approximately $1 billion. This implies the beginning of the expected wind down of this work and a step down and the fourth quarter. It is worth noting our revenue estimate for Covid response work for the fourth quarter is relatively unchanged from our previous forecast.
The.
<unk> organic revenue growth for fiscal 2021 adjusted to exclude the census contract and Covid response work is 2.6% assuming the midpoint of our new guidance range disclosed today. This is hampered by contraction due to the negative impact of the COVID-19 pandemic on some core.
Grams.
And while it is still early the 2 acquisitions, we completed during the fiscal year are both performing in line with our projections. The attained federal revenue for the 3 months ended June 32021 was $56 million, which equates to approximately $224 million on an annualized basis.
V S contributed $46 million of revenue.
Beginning from the acquisition date of May 'twenty, 8 'twenty, 'twenty, 1, which equates to approximately $515 million of revenue on an annualized basis.
Let me briefly touch on the balance sheet and cash flow items at June 32021, we had gross debt of $1.71 billion, and we had unrestricted cash and cash equivalents of $96.1 million.
At June 32021, our receivables were $1.13 billion, resulting from the inclusion of V. S acquired receivables and a substantial increase in revenue in the quarter. The DSO of 77 days includes V. S. On a pro forma basis and was skewed by the high level of revenue in June.
As compared to April and May D.
DSO was 75 days at December 31, 'twenty, and 'twenty and 70 at March 31, 2021, which included attain federal on a pro forma basis.
Cash from operations of negative $33 million and free cash flow of negative $41.6 million for the 3 months ended June 32021 were significantly impacted in the quarter due to this additional investment and working capital and.
Assuming the midpoint of our new revenue guidance range, and assuming 72 days DSO, we expect the cash from operations to be in the range of $425 million to $455 million for the full year.
The fourth quarter should be a strong quarter for cash inflow I would like to note. The collections often occur towards the end of a month and slipping by only a few days can impact our cash flow forecast.
Cash flows from investing activities report significant activity, including almost $1.8 billion of cash outflows for the 2 acquisitions cash.
Cash flows from financing activities showed the draw of $1.7 billion on our new credit facility in May the.
And the credit facilities flexible and at $2.1 billion in total and provides us an additional $400 million for liquidity and to fund smaller acquisitions complete.
Completion of the new facility represents a milestone for the company and adds substantial capacity to enable larger transactions such as the yes. It supports our strategy to be acquisitive for purposes of driving long term organic growth, which we believe leads to creation of shareholder value.
On June 1st we announced completion of the V. S acquisition, which follows the March 1st acquisition of obtained federal.
We view these acquisitions as major milestones for Maximus as they represent execution of our acquisition strategy.
And put the company and a favorable position to achieve our future organic growth goals.
To demonstrate the positive impact of these acquisitions. Today's press release includes pro forma income statements for the 12 months ended June 30, 'twenty 'twenty..1 this pro forma assumes attain federal and V. S had been acquired on July 1.2020 and therefore included for a full 12 months in our operating results.
The operating income and operating margin for the 12 month period, excluding amortization of intangible assets was $591.3 million and 12, 7% respectively for the combined company inclusive of attain federal and V. S. Both.
Both acquisitions blend up our gross profit margin and are accretive to our results from operations.
While the acquisitions are positive we continue to experience a drag on earnings from the impact of the health crisis on some of our core programs.
As we have noted in previous quarters, we assume that the public health emergency will persist through the remainder of fiscal 2021as signaled by the January 22nd letter from the then secretary of the Department of Health and Human services to U S. Governors. We continue to believe that it is not a matter of if but.
Other and matter of when these core programs will return to a more normal state of operations.
As for the remainder of fiscal 2021, our expectation for the full year is for revenue to range between 4.2, and 4 point to $5 billion and for diluted earnings per share to range between $4.65 and $4.75. We expect cash from operations to range between 425.
And $455 million and free cash flow between $375 million and $405 million for the fiscal year 'twenty 'twenty..1 as I noted we are seeing evidence of the Covid response work tapering off and that is reflected in our guidance for fiscal year 'twenty 'twenty 1.
The midpoint of guidance implies and operating income margin of 9.8%.
Operating income is after amortization of purchased intangibles, while finalization of the valuation of the acquired intangible assets is still pending our best estimate for fiscal 2021 amortization expense is $44 million and reflects.
The increase due to the 2 acquisitions the operating income margin, excluding the amortization of purchased intangible assets implied by the guidance for the full fiscal year ending September 30, 2021 is 10, 9%.
The fourth quarter results for fiscal 2021 will be negatively impacted by the startup contracts outside the U S, which are expected to have operating losses in the range of $13 million to $15 million within the fourth quarter.
Our effective income tax rate for the full year ended September 30, 'twenty 'twenty..1 is expected to be between 25, and 25.5%. We expect interest expense to be approximately $14 million for fiscal 2021 and approximately $10 million in the fourth quarter. This.
This interest expense reflects the successful financing that we completed on may 28th 'twenty 'twenty 1.
And <unk> stronger company as a result to perform me the census contract and the Covid response work.
As we announced and January I am planning to retire on November 30th and David Mutual and will assume the CFO roll on December 1st.
I will now turn it over to David to discuss the segment results and make a few comments on fiscal 2022.
Thanks, Rick.
Third quarter of fiscal 20th 21 revenue and the U S services segment increased to $436.3 million driven by an estimated $164 million of Covid response work and.
And a segment operating income margin with 14.3%, reflecting the negative impact on some core programs, including those impacted by the paws of Medicaid redeterminations as well as push out of non Covid planned new work.
These factors also impact our fiscal 2021 full year expectations for the U S services segment operating income margin, which is expected to range between 16% and 17%.
Revenue for the third quarter of fiscal 2021 for the U S. Federal services segment increased to $617.6 million from $450.1 million and the prior year period due to particularly strong Covid response work and contributions from the 2 acquisitions offset by the lower revenue.
And who from the census contract.
Covid response, where it contributed an estimated $280 million of revenue to the segment.
Results and the quarter included a full period of attain federal and operations for a V E. S. From the acquisition date of May 28th.
The operating income margin for U S Federal was 13.9% the.
The quarter benefited from higher than expected volumes on the Covid response work.
Our full year fiscal 20th 21 guidance for the U S. Federal services segment is between 10% and 11% segment operating income margin for the fourth quarter of fiscal 2021, and we expect a margin between 11 and 12% for the segment.
Turning to outside the U S segment revenue for the third quarter of fiscal 2021 was $189.6 million operating income was $8.3 million, resulting in a margin of 4.4% the better than expected results for the outside the U S segment were largely due to good performance and.
Trailer and.
On our May 6th call, we noted contracts with start up losses to be incurred and the third and fourth quarters and the outside the U S segment as the revenue ramps and to the next fiscal year. The UK restart contract is responsible for the largest share of the incremental startup loss.
The start up losses are more heavily weighted to the fourth quarter of fiscal 20th 21 and.
As a reminder, the profitability for each of these outside the U S. Startup contracts is expected to exceed 10% operating income margins and we expect a significant improvement to the financial contribution from these contracts and the second half of fiscal 20 twenty-two.
With the start up losses, the physical 20th 21 full year margin for outside the U S is expected to be and the low single digits with a fourth quarter swinging to a loss is activity picks up on the UK restart program.
Turning to capital allocation the ratio of debt net of allowed cash to pro forma EBITDA for the 12 months ended June 30th 2021 calculated in accordance with our credit agreement is 2.4 to 1.
Our expectation for the remainder of fiscal year, 20th 21 and into fiscal year 20, twenty-two us to use our free cash flow to continue to pay our regular quarterly dividend and to pay down our debt.
Our stated aim is to US most of our free cash flow over the next few quarters to push this ratio closer to 2 to 1.
During this period, we will continue to search for and execute tuck and transactions that are accretive deliver good value and have a strong potential to drive future organic growth.
Longer term, we will continue to prioritise strategic acquisitions us our preferred us of capital.
We are often asked to comment on our dividend policy. Our plan is to continue to pay a regular quarterly dividend that it's fixed regardless of short term earnings fluctuations, but that increases over time as our earnings increase.
We target a dividend yield between 1% and 2% of our stock price based on our stock price over the last several months. The current annual dividend of $1.12 per year has ranged between a 1.2 and 1.4% yield. This cash yield is consistent with a peer groups we study.
Turning to physical 20th 22, I would like to share. Some early thoughts that are shaping our thinking for next year.
And we remain and a period with higher than usual uncertainty due to the pandemic and several unknown persist that we have already mentioned on the plus side, we feel less uncertainty going into physical 20 twenty-two as compared to this time last year, which gives visibility to the following number 1 we expect the acquired businesses and.
Attain federal and V E S to deliver approximately $750 million of revenue and physical twenty-twenty to.
This compares to $320 million to $330 million forecasted for the 2 acquisitions and physical 2021 number 2 we currently expect the revenue and fiscal 20 twenty-two from Covid response work to be and the range of $150 million to $200 million. This is and expected reduction of profitable.
Work, which is Rick noted is now earning above our corporate average operating income margin.
Number 3 our expectation us that revenue from the startup contracts outside the U S will be at least $150 million higher and physical 20, twenty-two as compared to fiscal 20th 21 number.
And number 4 and we expect amortization expense to be between 80 and $85 million number 5 we expect interest expense to be between 30 and $33 million and the effective income tax rate, assuming no change and U S federal rates should be between 25 and 26%.
Number 6 finally, we anticipate that earnings are back loaded and physical 20 twenty-two with the first quarter expect it to be the low point followed by sequential improvement there are 2 reasons for this.
First we are seeing signs that some core programs, which have been negatively impacted by the pandemic should see performance improvements between the first and second quarters.
We expect the associated costs to be ramping up and the first quarter and the revenue to follow which is typical with our contracts.
Second we expect the first quarter to be negatively impacted by the startup contracts outside the U S. We currently expect the startup contracts to achieve breakeven and the first half of the year and to make strong contributions and the back half of the year said any outside the U S segment up for improved margins exiting the year.
Consistent with our past practice, we will provide guidance for fiscal year, 20, twenty-two and November including additional color around the quarterly profile and with that I will turn the call over to Bruce.
Thank you David and good morning, everyone as the attain federal and ves acquisitions settle into our business, where and a solid position to execute on our longterm organic growth goals across all 3 segments.
Our position is bolstered by the benefits and new capabilities of the 2 recent acquisitions and our team's unprecedented efforts throughout this past year, which have deepened our relationships with key clients and brought new clients.
With 2 months left to go and fiscal year 2021, and it's natural for us to be looking towards next year. When we expect to see not only macro trends, bringing improvement to our core programs, but also momentum through new programs, such as the UK restart and additional clinical and digital IP services work afforded by attained federal and V E.
Yes.
Prior to V. Yes, 15% of our work was clinical and nature, whereas it now accounts for approximately 25% of our portfolio.
Further the additional capabilities for maintain federal meaningfully expand our technology consulting and growing systems integration skills, increasing our ability to address the most pressing I T needs of our federal clients, while providing internal opportunities to improve the quality and efficiency of our business process services operations.
I'm pleased that we're already seeing the anticipated benefits of these acquisitions to the combined companies and to our clients. We are increasing the capacity of V. E. S to deliver on the excess inventory reduction goals of the V. A while working to identify opportunities for greater process efficiencies through new digital solutions and.
And as an example, we have already enhanced the ves contact center to increase capacity and improve veteran outreach and exams scheduling.
Are attained federal colleagues are delivering on complex program challenges for critical clients, while gaining the ability to bid on larger opportunities through newly available contract vehicles as Maximus moves forward program administration work, particularly the delivery of citizen services, and and independent and conflict free manner.
We will continue to underpin our business.
Over time, we anticipate technology, playing a larger role in this area and the work continuing to evolve to include more clinical assessments and related services.
Our maturing portfolio of digital solutions, and increasing systems integration capabilities will enable us to make greater use of the data underlying our operations provide improved decision support tools to our employees and enable and more seamless and high quality customer experience.
Looking at our segment profile and the wake of the recent acquisitions U S. Federal services now delivers approximately half of our revenue.
Through the teams ongoing efforts as well as the recent acquisitions the platform capabilities are in place to further our longterm organic growth goals and advance our corporate strategy across all 3 segments.
Our digital strategy started several years ago with what has now become table steaks, including mobile applications streamlining program application and enrollment R. P. A automating processes and chat and text functions, providing additional channels for citizen engagement.
Maximus must routinize these capabilities and create a solid foundation upon which the next generation of digital solutions can be built.
I am proud of our organizations accomplishments and driving cost out of routine transactions and improving the quality and timeliness of our citizens services. However, we must constantly advance our skills and solutions to meet and exceed client expectations are.
Our previous technology investments, such as application and telephony and Macleod migration have created and infrastructure that enables us secure hybrid work environment and deliver significant value to our clients as demonstrated during the pandemic.
Our platform provides maximus and our clients more readily available access to valuable data and vast amounts of compute capacity.
Through our current and planned investments and data governance are rapid innovation and delivery methodology and continued growth of digital competencies across the organization, we are well positioned to deliver new solutions underpinned by AI and machine learning and leveraging other cognitive computing capabilities as part of the next phase of our digital strategy.
Through this client focused approach, we intend to provide even better decision support tools for our employees and lower costs, while accomplishing more complex transactions for citizens at scale.
Serving as a platform upon which we will grow our federal I T services Maximus attained brings needed skills and experience and enables us to systematize, how we conduct digital projects with the addition of attain we're driving a cultural shift towards thinking and a digital first fashion moving forward.
To give you more color on the increasing role of AI and our business. Let me provide 2 examples that illustrate use cases focused on creating a better citizen inexperience and improving the decision support tools available to our clients and employees.
Our speech analytics capabilities implemented within our California vaccine information line project enable us to understand customer sentiment and improve call resolution determined certain reasons for long silences that impact handled time and quality and increase called deflection by assessing why individuals are calling especially during a surge.
Furthermore, our topic mining solution empowers our state clients to effectively disseminate critical public health information and particularly important capability during the pandemic.
At U S citizenship, and immigration services or U S. C I S.
Maximus attain team looked at how we could improve efficiency implementing AI to automate routine tasks, enabling agency employees to focus on other critical work.
This human plus strategy augments individuals by driving automation, increasing efficiency and supporting a better decision making process.
I'm also pleased to share the recent award of 2 modernization contracts from the internal revenue service worth a combined $151 million awarded on the GSA Alliant to contract vehicle.
Our team's efforts to support the agency's modernization program have been expanded through the development infrastructure security and modernization or disarm contract with the technology integration office of the I R. S.
And this office is responsible for all new technologies brought into the I R. S.
We have a long standing relationship with the I R. S, which initially began and 1991 and are uniquely positioned to support the agency as day focus on modernization projects and build solutions to meet their mission critical needs.
Our people have the knowledge and skills critical to the I R. S mission and have been proud to support their government counterparts achievements, particularly during the pandemic.
Or a clinical strategy concentrates on execution of the capabilities platforms that are now and place as I mentioned, our immediate focus remains and support a V E. S. The V a and the veterans we serve to increase capacity and address the excess examination inventory.
As a result, we're still targeting the end of the calendar year and into early 20 twenty-two for integration to ensure no disruption and service.
Meanwhile, we're working closely with our team to identify and deliver streamlined processes and new digital solutions, which likely will draw and part on software development capabilities gained through attain and added benefit of these recent combinations.
Outside the U S is Rick noted our margin profile for restart UK will improve over the next several quarters with O U S startups collectively anticipated to achieve 10% or higher operating income margin over the life of the contracts and provide us at least $150 million of additional revenue and FY twenty-two.
I'm also pleased to share that the Maximus UK team has received and extension on the health assessment Advisory service contract through August 20th twenty-three.
And March of 2020, and the department for work and pensions halted all face to face assessments, resulting and reduced activity levels and financial performance soon.
Since that time the team has worked with the department to adapt develop and implement alternative services, including both telephone and video assessments.
This approach has enabled us to provide support for thousands of customers and we anticipate will remain and element of program delivery going forward.
Turning to New awards and pipeline as of June 30th for the third quarter of fiscal year 2021 year to date signed awards were $3.2 billion of total contract value at June 30th.
This includes the UK restart award that we announced on April 26, and the C. D. C vaccination Hotline award for which we have assumed a 300 million dollar total contract value.
Further at June 30th there were another $1.38 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 June 30th was $33.6 billion compared to $35.6 billion reported and the second quarter of fiscal 2021.
The June 30th pipeline is comprised of approximately 4.2 billion and proposals pending 6.8 billion and proposals and preparation and 22.6 billion and opportunities tracking.
Of the total pipeline, 63.6% represents new work opportunities.
Approximately $1 billion of the pipeline reduction is due to the UK restart program award with the remainder largely a result of government. The laser cancellation of work that pushes opportunities out past the 2 year horizon for pipeline reporting.
We have observed that some of this delay is a residual effect of COVID-19, altering procurement priorities.
As Rick noted, we primarily beat our revenue expectations as a result of higher than anticipated volumes and COVID-19 response work and the U S Federal segment.
Illustrating the capabilities, we demonstrated during the pandemic, we quickly ramped up approximately 13000 agents on 1 contract alone which required initially hiring nearly 20000 perspective staff we.
We saw our largest starting class ever on 1 day, comprising more than 12005 hundred remote agents as part of this effort.
The cloud based telephony infrastructure built and stress tested for this same contract was among the largest ever constructed for government capable of handling up to a half a million calls per hour or 160 calls per second.
Responding to the changing needs of our client our team was able to rapidly scaled down the operation as directed.
The highly variable cost structure of our model, coupled with and expansive labor supply chain enhance through the census contract and cloud based technology gives us the ability to capitalize on sizable opportunities of a short term nature without stranding capital assets when the programs wind down.
As a result of demonstrated this both underscores or value to governments and times of need and provides returns that can be invested towards longer term growth objectives.
The execution of our strategy is maturing as attained federal and V E S become more fully integrated into our business and we worked to leverage the platforms and capabilities they bring.
This will complement the foundation, we have built across clinical services and digital technologies previously and our existing organic growth efforts.
As Rick and I have cautioned this year. The COVID-19 work is tapering off quickly while with some exceptions like Australia, our core programs I have not yet returned to their prepandemic activity levels.
However, we expect these activities to ultimately return we believe it's a matter of timing and not a shift and longterm market characteristics. Indeed, the fundamental macro trends and long term needs of governments worldwide that have supported our business for decades remain firmly in place with the acquisitions. We've completed the agility we have.
Demonstrated during COVID-19 and the desirable financial attributes of our business model, we find ourselves well positioned to respond to these trends and meet the growing needs of our government clients.
Finally on behalf of the Maximus leadership team, Rick David and I would like to thank the tens of thousands of Maximus employees and contracted staff worldwide, who have risen to the remarkable challenges. During this period, who have recently joined through the acquisitions and who have collectively delivered the strong results that we were able to report this morning.
And with that we'll 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 1 on your telephone keypad.
A confirmation Tamil indicate your line is and the question Q. He may price dark you. If you would like to remove your questions and the cure prep.
But participants moving speaker equipment and may be necessary to pick up your handset before a person and this darkies 1 moment, please volleyball for questions.
Thank you. Our first question comes from the line of Charlie's Trouser with T. J S. Securities. Please proceed with your question.
Good morning, and this is Brendan off Charlie and just wanted to ask first of all on you gave some thoughts on on F Y 22, and and what tasks that organic growth for for 22 and and what what.
And what baseball working off of and then and and I guess and the various levers that how you get to.
And where do you think growth over.
Great Hey, Brandon, It's Bruce Caswell, David nutrients Gonna take that question.
And I think Brandon.
Yeah, we laid out plenty of pieces and the and the script, though.
Look at what 1 other way that we think about it and to you as you look at the chart and the presentation you.
And you can see we calculated and organic revenue Bay for FY 21 of 2.819 billion. So that would exclude the COVID-19 response or extensive and the acquisition.
If you add $750 million for the acquisition and 175 million for the midpoint of expected Covid work that would total 3.7 and 4.4 billion.
We took a look at the F Y 22 consensus which is sitting at about 4.1 billion, which would imply that we need approximately $360 million to fill and which would require about 12% growth over that adjusted organic day.
Since we expect to see at least 150 million of growth from outside the US and we expect Corps program volume to improve all and all we think that's a reasonable expectation.
Thanks Brandon.
X question. Please.
Our next question comes from the line of Donald Hooker with Keybanc capital markets. Please proceed with your question.
Great I I wanted to talk a little bit more and hear your perspective on it round the outside of the U S segment.
Kind of sensitivities around case volumes and I know, there's a lot of a lot of assumptions that 1 would need to make air in terms of.
I'm kind of thinking about those contracts ramping and how many how much volume and can be kick and you just maybe discuss.
Discuss that a little bit.
Yeah and it's.
Bruce Caswell I'll be happy to start and then ask that Rick and our David could add a further color probably the 1 that I would focus on in terms of L. U S. As in the UK restart uhm contract because that's the the largest of the new startups and and as we look at it a little deceptive and the sense that the unemployment rate and the UK is around 5 per cent and presently and you might say well.
And they're they're just getting the program going will there be adequate.
Volumes and that program.
So to give you a little more color, there's a furlough scheme that the UK government has implemented during the pandemic that basically keeps people employed and the furlough payments and enable employers to pass those payments along to their employees as you'd imagine so they really don't count as looking for work and that further scheme comes to and and on September 30th and as all.
Those folks start losing their furlough money the unemployment rate will go up because there are no longer considered obviously as they have been and there'll be an increase and jobseekers into the market couple of other points.
It's a mandatory program so that anybody that's been claiming benefits or he's claiming benefits and government has to go through this program in order to avoid putting their benefits it with us and we received referrals exclusively brown, the UK job centre plus and.
Offices, the analysis that we have seen that the government did that underpins. The procurement itself suggests that the eligible individuals that will be coming through those offices actually exceed the planned entrants under the program and the contract as it's designed they had and an independent consultant and do that work.
We also as you can imagine that a lot of analysis before bidding the contract packages that we did and successfully won.
Our analysis also suggested and we looked at local labor market conditions and job types, my employer and so on and said or at the very highly localised economic analysis for our contract package areas and that supports also the assertion that there are.
Are adequate volumes coming into the program to meet the financial objectives last point that I would make it that this is a different contract then earlier contracts and the U K and the DWP, what I was very focused on value for money and ensuring that the participant.
Tender and and the program and companies like Maximus.
And could have returns that exceed their cost of operations. The structure is similar and the sense that they are fixed and variable costs and the cost recovery scheme, and and and it's a performance based outcomes program.
But there's definitely improved protection margin erosion that we would've seen perhaps an earlier UK employment services contracts and if we take that altogether, we feel confident and the and if you will the profile of how the O U S made.
A major startup programs, including restart and particular since it's the largest will perform as we turned the corner and then the next fiscal year and would that Rick is going to add a little bit more oh, yeah, just to reinforce that you're correct. Those are outcome state that is outcomes based contract and the UK is the is the biggest piece of it I also wanted to make sure that.
That you remember that we did those contracts to provide more than a 10% operating income margin over the life of the contract. So they will be more backloaded.
On the contract life, but they will also create a back loading and FY twenty-two the back half of the year will be definitely improved by the.
By the maturity of those programs outside the U S.
And do you have a follow up or.
Yeah can I ask 1 more if you don't mind, 1 of the things I'm sort of trying to understand us that sort of the by the administration has been pretty aggressively and.
Encouraging people to go on these exchanges.
I would think that's positive for you and I would think I would see that and your numbers, but maybe maybe it's not can you can walk through.
How you guys work with these exchanges obvious veteran and the state.
Sure and that is for us a happy happy to do that so we have to all day, you well know we support the federal market place and through the the CTO contract that you're familiar with and that's the I'm going to say, it's roughly now 37 or 36 to 8 that remain on the federal market place because there have been some states that have been moving to state based exchange.
And that's actually been positive for us as well as we picked up work in New Jersey, and most recently and Maine working with those states to implement their exchanges there are others and the pipeline, it's well known that Virginia is considering and will be moving to a state based exchange as well and we have our legacies.
Leggett. These date based exchange contracts, and large states, including and New York and and others write that you're familiar with so a couple of things first of all I think that there was a reasonable uptick in exchange enrollments corresponding to the extended special enrollment period that was I believe kind of January 15th true.
May 15th of this year. Some numbers would suggest that there are about 2 million additional Americans that enrolled during that period and those volumes there would be begged into our numbers, they're spread out significantly, but but we were able to accommodate that within the staffing profile and particularly on our large federal contract and then what starts to get more interesting.
2 things the vitamins duration and come out with a proposed rule that still have to go through the regulatory process that would further you know encourage and create an environment where more individuals can get into exchange.
Benefit plans over time and the reason they're focused on this is as redeterminations come back and for Medicaid. There's a concern that you could have as many as 10 million Americans because Medicaid enrollments themselves were up about close to 10 million. During the pandemic periods you could have a lot of people that now that they're getting back into jobs depending.
And on their income levels may no longer qualify for Medicaid, but [noise] need some type of health benefit coverage and I think it was on July 22nd that G. M. S administrator Chiquita Brooks the shore spoke at Georgetown University and talked about how CMS.
Is extremely focused on ensuring that people don't have the benefit cliff and when when redetermination begin again and they need to get into the exchanges. So there's.
A pending rule, making that would have created special enrollment period, each month, particularly for individuals with low income and also the vitamins durations, you're probably aware through executive orders and other proposed rule, making us finding ways to for example decrease the amount of out of pocket cost for individuals buying coverage on the exchanges.
And and and so forth. So I think that we have yet to see honestly the effect on the exchanges of those dynamics and that's something that we'd likely see you know more like in the first quarter and second quarter of next year as the Redeterminations begin again and it starts to exit the public health emergency and individuals.
Need to replace their their current coverage with new coverage and many cases advanced premium tax credit or subsidize exchange coverage.
So I hope that helps in terms of the dynamics.
Sure Thanks that.
X question. Please.
Thank you as a reminder, and he would like to ask a question press star 1 on your telephone keypad and.
Question comes from the line of Richard close they can acquire Genuity. Please proceed with your question.
Great. Thanks for all the details and the presentation and and and the call, especially on organic growth. So I really appreciate that and Bruce I was wondering if we could just talk about the pipeline a little bit [noise] you know obviously you've done these acquisitions here over the last.
Several months and how how did those factor and to the pipeline how should we be thinking about that whether that.
They've been included in the pipeline, whereas maybe the last time you reported they were not.
I'm happy to address that thanks, Richard Good question the.
A couple of points and then I'll ask Richard David if anything further to add the the pipeline does reflect.
If you will the bringing together of the attain federal pipeline and our existing Maximus pipeline and obviously any new opportunities that have been created as a consequence of that transaction.
And maybe a small point, but in my prepared remarks and talked about the New award the I R. S and that was that was made under the Alliant 2 vehicle and we've talked for some time about how important that vehicle us to us and our future and how it's a vehicle that was very desirable for attain so the pipeline would reflect new opportunities for example that obtain federal and now have.
<unk> access to through a lie at 2 or other vehicles that we had so that that is baked into and the numbers that you're seeing.
Yes on the other hand, it's important to note never really did any business development outside of the veterans administration and for good reason because the you know the work that they have during the medical disability examination has been quite significant and there is a excess inventory that the existing vendors need to address and that excess inventory.
And only really quite frankly been building as Congress has been looking at and authorizing addition, additional benefit categories and so there are things like the blue water benefits related to agent Orange, there's the burn pit benefits and and other benefits that will continue to support the significant inventory of work to be done just for the VA Oh.
Over time now that said when we look hard at other players in that business. It's evident to us that there are there are significant other work and federal government agencies and particular in places like the defense Health administration or the armed services that aligns extremely well with the capability that we now have as part of the attain acquisition.
And so there are pipeline opportunities out there, but don't forget our pipeline right now only captures opportunities that are 2 years out or.
Or closer and so.
Absolutely focused in the near term on supporting R V a customer and I think we've said before that if we.
Anticipate pipeline yield from the Ves acquisition, it's more probably about 24.25 event because it'll take some time to develop those opportunities and they'd be further than 2 years out at this time and not yet reflected in the pipeline, but they're they're meaningful from my perspective, having looked at them and looked at those programs and assessed our competitiveness there's certainly.
Meaningful and nature, David Who's going to add something yeah, Richard just to clarify 1 thing. They attained pipeline was also included and are 331 pipeline number and since we had acquired them on March 1st.
Great Okay.
Yeah, I was kind of a follow up and this is a.
A question from left field, but we cover Cerner, they're obviously doing the E. H R. A modernization for the V. A and and you know there's been a lot of questions and and and whatnot with respect to that that process going.
Forward and delays and I'm just curious you know with your V. A business is there any like you know maybe collateral damage with that program in terms of just mind share at V. A where you know maybe you know they are.
So focused on that that you know other contracts and stuff like that you know maybe get pushed to the side or and any thoughts and and around that I know, it's and oddball question.
Oh no. It's it's an interesting question and I think I'd have to responses. The first uhm is that we're talking about 2 different parts of the VA for the programs that we administer vs. The cerner, 1 and I'm not mistaken be sterner implementation is really focused on the veterans Health administration, and VH egg and our customer for the medical disability examinations us the veterans.
Benefit administration, and the Bianca and so you know kind of separate procurement organization, and certainly separate program offices, and where where there might be like a longterm downstream and the impact I guess it would be at veterans are authorized for certain benefits and those benefits also correspond with further health care and the V. A system to the degree that the center implementation and.
And by slows down the delivery of health care, there could be affected on all veterans day, but there's really no, but they're getting them and the front door and getting them determined eligible for benefits and completely independent operation and independent function.
The from the function of the of the hospitals themselves and the implementation of the center.
The Senator platform and the area, where the second half of the question are really more maybe 25% would be.
We are excited about the new capabilities that attain brings us and historically obtained us down a little bit of work and the VA, but not a lot and we think there are opportunities related to technology over the longer term and the V. A where now being a more known entity and known quantity to the VA, we could be eligible to bid. So I would hope that over time we.
Develop a pipeline us technology related opportunities and attained wheelhouse with that customer as well.
Okay. Thank you okay.
Yep.
Operator next question please.
Our next question is a follow up some Brendan Pops and with T. J S. Securities. Please proceed with your question.
Alright. Thank you for taking a follow up I just wanted to ask on on I R V S.
Yeah. Your your annualized numbers are coming and toward the high and I believe from what what you. The originally the range of given US case is are there. Some some wins and there are is there some seasonality their temporary benefit and he had suggest that or if it's just doing well and then.
And and and then if you could address your.
And the thoughts you gave on on on for FY 22 for he S and detain and and I I think if I had my back of the envelope said, that's maybe 4 or 5% organic growth for us but.
Talk to those things that'd be great.
Yeah, It's David Thanks, Bye and then yeah as as we thought and that's great. Both businesses are doing well I think part of what we're thing is just better visibility on our part having both acquisitions here. They they do continue to perform well the us at work is volume based like many of our contracts that were used to though volumes are.
Ah running pretty well and I think that that's what caused the us to kind of move to the higher range of what we provided before.
That answer your question Brendan.
Yeah, and and then is is like that mid single digit growth that is that the right way to think about it for for 22 faced and what you gave and and and longterm as it is that you're you're.
[noise] goal with with both of Us.
Yes, I think that's fair.
Okay.
Alright, thank you.
Thanks, Brendan operator back to Ya.
Our next question comes from the line of Donald how can with Keybanc capital markets. Please proceed with your question.
Oh, great sorry to keep bugging, you, but 1 for me.
I'm trying to sort of look at your sales pipeline and tried to discern whether you're seeing growth. There I know you guys have put new south leadership, and federal and your services and and I know, there's a lot of like ups and downs and the broader macro backdrop.
Can you kind of talk about how much maybe attain added to the sales pipeline following up on a farm and I like Richard Quest question.
Uhm, just try and get a sense of what is that training higher or or you know.
Can you can you can you elaborate on that and if that's possible.
Sure. So it made maybe what I should do is begin by giving.
And give me a little bit of a backdrop on the comment we made about some delays and the pipeline still related to the pandemic.
And let you know kind of break that up by segment and then we can get into the details.
We probably seen the most pronounced uhm.
Delay or pressure in the US services segment as it relates to I can think for example, there are several amendments uhm related to our work for certain customers that we would have previously thought would fall and do F. Y 21, which are more on the bubble could be Q4 events could be FY twenty-two events and those do I think reflect the fact that state level customers have.
You know less robust at times procurement shops, and contracting kind of capacity and when they're focused on pandemic related responses things that may be more routine and nature or a new program that you know it's okay. If they if they shipped a little bit can be delayed and so I'd say the U S services pipeline if anything has been has.
Been affected by that outside the U S. I would say that employment services and that area and particular, we've seen very.
Solid procurement cadences, I mean that is evidenced by the new wins, we've had and so forth so that and brings us to the federal.
Federal probably been the strongest from a pipeline standpoint in terms of new opportunities we were thrilled that.
Good example would be the I R. S. The IRS has been in the engine room of responding the pandemic with you know major call centre stood up to handle inquiries from taxpayers and and and so forth, but still at the same time moving ahead with procurements related to modernization and some wins that we spoke about and my prepared remarks, and so I'd.
I'd say, that's fairly consistent with other agencies. There are I can think of a couple of departments, where they're still kind of sorting out what their strategy is going to be.
And the new administration compared to the prior and so there have been some delays there you might've had some modernization programs that were kind of heat up and the prior administration that the current administration is rethinking and that's caused a bit of a reshuffling or a cancellation of it you know prior procurements, and and and and consideration of new procurement approach.
And so I won't say that everything in federal has.
Kind of gotten back to what you would consider a normal cadence of opportunities, but federal has been strong the pipeline has been strong [noise].
We've talked about we.
Have new sales leadership and the federal team I think it's worth noting that that new sales leader has a history actually as a chief information officer in the federal government very connected to the customers and.
And was 1 of the very senior leaders that came over as part of the attain federal acquisition Uhm, if anything that should send a signal in terms of where we feel quite optimistic about the growth trajectory of the business going forward and.
And so as a as a result, while we haven't broken out the obtain federal contribution to the pipelines specifically.
I think the point is we feel that we're at a period of pivot and we have some momentum moving into this new area of IP digital IP services consulting and application development and really the beginning of systems integration competencies and we're trying to energize that with the sales leadership and the sales team and the order.
Innovation. So the I think the contributions from attain do the pipeline over time will only be growing and.
And if you were to look at that I might and I'll, just conclude by saying against publicly available data from Bloomberg and other sources. We've said many times that we want to be and the fast moving current of and otherwise you know gradually moving river and that area of I T services consulting and you know.
And application modernization is the fastest growing segment of the federal market place and that's how we're poised to address it.
Alright, I'll do that and thank you.
I think it would be great.
Alright, operator back to Ya.
Thank you, ladies and gentlemen, and we have reached the end of the question and answer session and with that the conclusion of today's call. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.