Q1 2022 Maximus Inc Earnings Call

February 3, 2022

Greetings and welcome to the Maximus Fiscal 2022 First Quarter Earnings Conference call. At this time, all participants are on a listen only mode. A brief question and answer session will follow the formal presentation. If anyone's require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Madison West, Vice President of Investor Relations, and ESG for Maximus. Thank you, Miss West. Please go ahead. Thank you.

Greetings and welcome to the Maximus fiscal 2022 first quarter 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. 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 it is now my pleasure to introduce your host Madison West Vice President of Investor Relations and ESG for Maximus. Thank you Mr. West. Please go ahead.

Good morning and thank you for joining us. With me today is Bruce Caswell, President and CEO , David Mutren, CFO , and James Francis, Vice President of Investor Relations.

Good morning, and thank you for joining US with me today is Bruce Caswell, President and CEO , David nutrient CFO and James Francis Vice President of Investor Relations.

I'd like to remind everyone that a number of statements being made today will be forward-looking in nature. Please remember that such statements are only predictions. Actual events and results may differ materially, including those discussed in item 1a of our most recent forms, 10Q and 10K.

I'd like to remind everyone that a number of statements being made today will be forward looking in nature. Please remember that such statements are only predictions actual events and results may differ materially, including those discussed in item one a of our most recent forms 10-Q and 10-K.

We encourage you to review the information contained in our most recent filings with the SEC and our earnings press release today. The company does not assume any obligation to revise or update these forward looking statements to reflect subsequent events or circumstances, except as required by law.

We encourage you to review the information contained in our most recent filings with the SEC and our earnings press release today.

The company does not assume any obligation to revise or update. These forward looking statements to reflect subsequent events or circumstances, except as required by law.

Today's 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 forms 10Q and 10K. And with that, I'll hand the call over to David.

Today's 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 forms 10-Q, and 10-K and with that I'll hand, the call over to David.

Thanks Madison.

This morning Maximus reported revenue for the first quarter of fiscal year, 'twenty, 'twenty, two which increased 21, 7% year over year to $1.15 billion as expected topline growth was driven primarily by the contributions from acquisitions in the U S. Federal services segment and to a lesser extent.

Ramping of the startups in the outside the U S segment, which includes the U K restart program.

On the bottom line for the first quarter of fiscal 2022, the operating income margin was 7.1 percent, or 9.0 percent, excluding the expense for intangibles amortization.

On the bottom line for the first quarter of fiscal 2022, the operating income margin was 7.1% or 9.0%, excluding the expense for intangibles amortization.

diluted earnings per share were 85 cents or $1.12, excluding the amortization expense.

Alluded earnings per share were <unk>, 85 cents or one dollar and 12 cents, excluding the amortization expense.

Our first quarter results were slightly better than anticipated with some variability by segment.

As a reminder, we expect a depressed earnings profile in the first half of the fiscal year, caused by delays in our core programs returning to pre-pandemic levels as the COVID response work declines.

As a reminder, we expect a depressed earnings profile in the first half of the fiscal year caused by delays in our core programs returning to pre pandemic levels as the Covid response work declines.

Also, as previously noted, startups in the outside the US segment, most notably the UK Restart Program, will continue to ramp with operating losses in the first task of fiscal 2022.

Also as previously noted startups in the outside the U S segment, most notably the U K restart program will continue to ramp with operating losses in the first half of fiscal 2022 .

COVID response work delivered about $120 million in the first quarter of fiscal 2022, or about 40 million less than in the prior year period. While our organic revenue declined 3.5% in the quarter, adjusting for the COVID response work and the concluded census contract, normalized organic growth would be approximately 9% year over year.

Covid response work delivered about $120 million in the first quarter of fiscal 'twenty, 'twenty, two or about $40 million less than in the prior year period.

Our organic revenue declined 3.5% in the quarter adjusting for the Covid response work and the concluded census contract normalized organic growth would be approximately 9% year over year.

Let me pause here for a housekeeping item. Over the past two years, we've estimated revenue associated with COVID response work, recognizing that the large volume and the temporary nature are important to investors understanding of our business.

Let me pause here for a housekeeping item over the past two years, we've estimated revenue associated with Covid response work recognizing that the large volume and the temporary nature are important to investors understanding of our business.

As the COVID pandemic continues and seems to be transitioning to an endemic, we are seeing some of this temporary work transition to longer-term work supporting our customers. In some cases, beyond work, specifically supporting COVID response.

As the Covid pandemic continues and seems to be transitioning to an endemic we are seeing some of this temporary work transition to longer term work supporting our customers in some cases beyond work specifically supporting Covid response give.

Given this evolution and with the large bubble of short-term work behind us, we will be gradually moving away from tracking and estimating this in such detail. I will now review financial results.

Given this evolution and with the large bubble of short term work behind us we will be gradually moving away from tracking and estimating this in such detail.

I will now review financial results for the segments.

The US services segment delivered revenue of $386.4 million for the quarter, which was relatively flat year over year.

The U S services segment delivered revenue of $386 $4 million for the quarter, which was relatively flat year over year.

COVID response work in the segment declined approximately 32 million dollars from the prior year period. Normalized for the COVID work, revenue grew 12 percent.

Good response work in the segment declined approximately $32 million from the prior year period.

Normalized for the Covid work revenue grew 12%.

This was all organic and driven by ramping of new, longer-term work.

This was all organic and driven by ramping of new longer term work.

The segment operating income margin was 14.1% as compared to 16.0% in the prior year.

This segment exceeded our expectations modestly in the quarter driven primarily by more short term Covid response work.

This segment exceeded our expectations modestly in the quarter, driven primarily by more short-term COVID response.

Medicaid redeterminations remain paused due to the most recent public health emergency extension, which occurred on January 14th and will remain an effect for 90 days.

Medicaid Redetermination remain paused due to the most recent public health emergency extension, which occurred on January 14th and will remain in effect for 90 days. Despite the extension, we still anticipate that redetermination activities should begin to resume in fiscal 2022 .

Despite the extension, we still anticipate that redetermination activities should begin to resume in fiscal 2022. We have assumed a one-month delay from our previous projection, meaning our outlook today assumes starting this work in the month of May, 2022.

We have assumed a one month delay from our previous projection, meaning our outlook today assume starting this work in the month of May 2022 .

For the U S. Federal services segment first quarter fiscal 2022 revenue increased 43.6% to $581.9 million driven primarily by contributions from the attained federal N V. S acquisition, the acquisitions occurred in the second and third quarter respectively.

For the U.S. Federal Services segment, first quarter fiscal 2022 revenue increased 43.6 percent to $581.9 million, driven primarily by contributions from the attained federal and VES acquisitions. The acquisitions occurred in the second and third quarter respectively of fiscal 2021.

Fiscal 2021 .

COVID response work in the segment declined approximately $8 million from the prior year period. On an organic basis, revenue declined 13% in the quarter. Adjusting for COVID response work in the concluded census contract, normalized organic growth in the segment would be about 5% over the prior year period.

Covid response work in this segment declined approximately $8 million from the prior year period on an organic basis revenue declined 13% in the quarter adjusting for Covid response work and the concluded census contract normalized organic growth in the segment would be about 5% over the prior year period.

The operating income margin for U S. Federal services was 10.6% in the first quarter of fiscal 2022 as compared to 7.5% in the prior year period as expected. The recent acquisitions helped blend up the operating margin for the segment.

The operating income margin for U.S. federal services was 10.6% in the first quarter of fiscal 2022 as compared to 7.5% in the prior year period. As expected, the recent acquisitions helped blend up the operating margin for the segment.

Turning to outside the U S segment first quarter revenue increased 17.5% to $182.6 million Ram.

Turning to outside the U.S. segment, first quarter revenue increased 17.5% to $182.6 million.

Ramping of the startups, including the UK restart program, where the primary contributor to growth in the segment.

The ramping of the startups, including the U K restart program were the primary contributor to growth in the segment.

The segment realized an operating loss of $9.5 million for the first quarter as compared to operating income of $4.5 million in the first quarter of fiscal 2021. The prior year period was bolstered by above-average performance on job placement activities in Australia, as that country began to emerge from the pandemic.

The segment realized an operating loss of $9.5 million for the first quarter as compared to operating income of $4 $5 million in the first quarter of fiscal 2021 the prior year period was bolstered by above average performance on job placement activities in Australia as that country began to emerge.

From the pandemic.

In this quarter, the startups that have planned losses up front continued to ramp and are still projected to reach break even at the midpoint of fiscal 2022. This includes the UK restart program and Bruce will provide an update in his prepared remarks. Let me touch on the balance.

And this quarter the startups that have planned losses upfront continued to ramp and are still projected to reach breakeven at the midpoint of fiscal 'twenty 'twenty. Two this includes the U K restart program and Bruce will provide an update in his prepared remarks.

Let me touch on the balance sheet and cash flow items.

As of December 31, 2021, we had gross debt of $1.61 billion, and we had unrestricted cash and cash equivalence of $182 million.

As of December 31, 2021 we had gross debt of $1.61 billion, and we had unrestricted cash and cash equivalents of $182 million.

The ratio of debt, net-up-aloud cash, to pro forma EBITDA, as calculated in accordance with our credit agreement, is 2.5 times. This compares to 2.3 times at September 30th, 2021.

The ratio of debt net of allowed cash to pro forma EBITDA as calculated in accordance with our credit agreement is 2.5 times. This compares to 2.3 times at September 30th 2021 .

Cash used in operations totaled $3 million and free cash flow used was $9 million for the first quarter of fiscal 2022 .

Cash used in operations totaled $3 million, and free cash flow used was $9 million for the first quarter of fiscal 2022.

These results reflect the anticipated increase in working capital, which included the payment of deferred payroll tax, and was contemplated in our fiscal 2022 cashflow guidance. We had good cash collections, and our DSO at December 31st was 67 days, putting us at the lower end of our target range of 65 to 80 days.

These results reflect the anticipated increase in working capital, which included the payment of deferred to payroll tax and was contemplated in our fiscal 2022 cash flow guidance, we had good cash collections and our DSO at December 31st with 67 days, putting us at the lower end of our target range of.

<unk> 65 to 80 days.

In terms of capital allocation, we continue to favor M&A as a means to drive long-term organic growth. Our M&A program continues to evaluate prospects while we remain prudent stewards of capital.

In terms of capital allocation, we continue to favor M&A as a means to drive long term organic growth are.

Our M&A program continues to evaluate prospects, while we remain prudent stewards of capital this means being selective in our evaluation and maintaining our goal of reducing debt.

This means being selective in our evaluations and maintaining our goal of reducing debt.

We believe that our balance sheet and cash from operations provide us with good access to capital to fund acquisition.

We believe that our balance sheet and cash from operations provide us with good access to capital to fund acquisitions. Finally, we remain committed to future quarterly cash dividends and share purchases will continue to be made opportunistically.

Finally, we remain committed to future quarterly cash dividends, and share purchases will continue to be made opportunistically.

Let's go to fiscal 2022 guidance and assumptions.

Let's go to fiscal 'twenty, 'twenty, two guidance and assumptions.

We are raising top-line guidance and now project revenue to be between $4.5 and $4.7 billion for the full fiscal year. Our earnings guidance remains unchanged. We expect deluded EPS to be between $4.4 and $4.30 and adjusted deluded EPS, which excludes intangibles amortization expense to be between $5.07 and $5.37.

We are raising topline guidance and now project revenue to be between 4.5 and $4.7 billion for the full fiscal year. Our earnings guidance remains unchanged, we expect diluted EPS to be between $4 and $4.30 and adjusted diluted EPS, which excludes.

<unk> amortization expense to be between $5.07 and $5.37.

Our intangible zammerization expense is projected to be approximately $90 million in fiscal 2022.

Our intangibles amortization expense is projected to be approximately $90 million in fiscal 2022 .

Our cash flow guidance is unchanged, with cash flows from operations expected to range between $275 and $325 million, and free cash flow between $225 and $275 million.

Our cash flow guidance is unchanged with cash flows from operations expected to range between 275, and $325 million and free cash flow between 225 and $275 million.

We anticipate interest expense to be between $33 and $35 million, the effective income tax rate between 25 and 26 percent, and weighted average shares absent share purchases to be between 62.5 and 62.6 million.

We anticipate interest expense to be between 33 and $35 million. The effective income tax rate between 25, and 26% and weighted average shares absent share purchases to be between 62.5 and $62.6 million.

Our expectations for margins in the domestic segments are unchanged with the U S services segment expected to be in the 13% to 14% range in the U S. Federal services margin to be in the 10% to 11% range for fiscal year 2022 .

Our expectations for margins in the domestic segments are unchanged, with the U.S. services segment expected to be in the 13 to 14 percent range and the U.S. federal services margin to be in the 10 to 11 percent range for fiscal year 2022.

For the outside the U.S. segment, we now expect the margin to be in the 1 to 3 percent range for the full year, reflecting our expectation that margin will improve in the second half of the fiscal year.

For the outside the U S segment, we now expect the margin to be in the 1% to 3% range for the full year, reflecting our expectation that margin will improve in the second half of the fiscal year.

Let me provide some commentary on the updated guidance. Our top-line forecast has increased, thanks largely to more COVID response work that we anticipate will benefit the first half of fiscal 2022. This stacks on top of the core business revenue projection and the assumed acquisition contributions, all of which remain largely unchanged from last quarter, reiterating our belief that the core business growth engine is running well.

Let me provide some commentary on the updated guidance our top line forecast is increased thanks, largely to more Covid response work that we anticipate will benefit the first half of fiscal 2022 .

This stacks on top of the core business revenue projection and the assumed acquisition contribution all of which remain largely unchanged from last quarter reiterating our belief that the core business growth engine is running well.

On the bottom line the contribution for more Covid response work has been offset by some bottom line headwinds in our core business.

On the bottom line, the contribution from more COVID response work has been offset by some bottom line headwinds in our core business.

In particular, the start to redeterminations is now expected to resume on or around May 1st, as I mentioned. Also, new core work related to fiscal 2021 awards is still on track to contribute revenue in fiscal 2022, but ramp at a more gradual rate.

In particular, the start to Redetermination is now expected to resume on or around May 1st as I mentioned also new core work related to fiscal 'twenty 'twenty. One awards is still on track to contribute revenue in fiscal 2022 but ramp at a more gradual rate.

In addition, our employment services contracts in the U K and Australia have reduced volume forecast due to the strength of the current labor market.

In addition, our employment services contracts in the U.K. and Australia have a reduced volume forecast due to the strength of the current labor market.

The current earnings guidance can accommodate these dynamics, but we still face risk of further delays, in particular related to the start of redetermination activities, which are outside of our control and may cause revenue and earnings to move to the right.

The current earnings guidance can accommodate these dynamics, but we still face risk of further delays in particular related to the start of Redetermination activities, which are outside of our control and may cause revenue and earnings to move to the right.

We currently project that the quarterly earnings profile is a little less steep than we estimated last quarter. We now forecast about 60% of our operating income and earnings to be realized in the second half of the fiscal year. This means we still expect depressed earnings in the second fiscal quarter as COVID response work continues to taper down and the resumption of core programs remains delayed.

We're down and the resumption of core programs remains delayed.

We still expect to exit the year at a higher run rate following improved performance in the back half of fiscal 2022.

We still expect to exit the year at a higher run rate following improved performance in the back half of fiscal 2022 and.

In closing, we remain optimistic about the future growth of the business, bolstered by our 2021 acquisition.

In closing, we remain optimistic about the future growth of the business bolstered by our 2021 acquisition.

While the COVID response work will continue to make for tougher year-over-year comparisons in the near term, underlying growth is accelerating as evidenced by the normalized organic growth of 9% in the quarter. And although exact timing is not entirely in our control, there remains a clear line of sight to margin improvement in all three segments. And with that, I'll turn the call.

While the Covid response work will continue to make for tougher year over year comparisons in the near term underlying growth is accelerating as evidenced by the normalized organic growth of 9% in the quarter and although exact timing is not entirely in our control there remains a clear line of sight to margin improvement.

Men in all three segments.

With that I'll turn the call over to Bruce.

Thank you David and good morning, everyone. As David noted we are seeing some additional COVID-19 extension work in light of the omicron variant and extended public health emergency or phe.

Thank you, David, and good morning, everyone. As David noted, we are seeing some additional COVID extension work in light of the Omicron variant and extended public health emergency, or PHE. This includes a recent CDC task order under our prior award illustrating how we are a vendor of choice when there's an urgent, albeit short-term, need from our clients.

This includes our recent C D C task order under our prior award illustrating how we are a vendor of choice. When there is an urgent, albeit short term need from our clients.

Overall, however, the nature of this work is changing and is providing positive proof points for our strategy of evolving COVID response work into new scope and extended relationships.

Overall, however, the nature of this work is changing and is providing positive proof points for our strategy of evolving Covid response work into new scope and extended relationships.

We continue to position ourselves as a long term public health partner as government constituents and businesses learned to live with this ongoing pandemic for instance, I'm pleased to share that included in our planned new work for fiscal year 'twenty. Two is an award for a multi year unemployment insurance contract with a state client with an estimate.

We continue to position ourselves as a long-term public health partner as government constituents and businesses learn to live with this ongoing pandemic. For instance, I'm pleased to share that included in our planned new work for fiscal year 22 is an award for a multi-year unemployment insurance contract with a state client with an estimated total contract value, or TCV, of more than $100 million.

Total contract value or T C V of more than $100 million.

Awards of this nature are underpinning the organic growth we are seeing in our core business.

As a further example in the first quarter, we were awarded a new contract to support eligibility operations, including changes intake in renewals for Medicaid by the Arkansas Department of human services.

As a further example, in the first quarter, we were awarded a new contract to support eligibility operations, including changes, intake, and renewals for Medicaid by the Arkansas Department of Human Services.

with a potential expansion to additional benefit program cases through the state's phased migration implementation.

With a potential expansion to additional benefit program cases through the states phased migration implementation effort.

This contract, which has a $68 million total contract value over one base year and six option years, is forecasted to contribute revenue beginning in the second quarter of fiscal year 2022.

This contract, which has a $68 million total contract value over one base year and six option years is forecasted to contribute revenue beginning in the second quarter of fiscal year 2022 .

Our past work helping the state address the eligibility case inventory positioned us for this opportunity.

Our past work, helping the state address the eligibility case inventory positioned us for this opportunity illustrating the strength of our brand as the go to partner for government awards, such as this further position us to support states with the forthcoming and of the phe or unwinding as it has come to be known.

Illustrating the strength of our brand as the go-to partner for government, awards such as this further position us to support states with the forthcoming end of the PHE or unwinding, as it has come to be known.

Let me give a brief update on the outside the U.S. segment, where, as David mentioned, we're seeing varying conditions in the major economies in which we operate, such as the U.K. and Australia.

Let me give a brief update on the outside the U S segment, whereas David mentioned, we're seeing varying conditions in the major economies in which we operate such as the U K and Australia.

Certain elements of our businesses outside the U.S. are operating at depressed levels as a result of the rise of the Omicron variant.

Certain elements of our businesses outside the U S are operating at depressed levels as a result of the rise of the omicron variant Gov.

Government policies in many cases suspend job seeker engagement obligations in these conditions, particularly for higher risk populations, such as the disabled leading to lower labor force participation rates.

In other cases, economic recovery has outpaced the models on which the programs were based, resulting in lower-than-anticipated unemployment rates.

In other cases economic recovery has outpaced the models on which the programs were based resulting in lower than anticipated unemployment rates.

Taken together, employment services programs in some countries are seeing a reduced volume forecast due to these dynamics, and this includes the UK Restart and Australian JobActiv program.

Together employment services programs and some countries are seeing a reduced volume forecast due to these dynamics and this includes the U K restart in Australia and job active programs.

However, the first quarter illustrated that our restart team is executing well, despite these uncontrollable labor market challenges.

However, the first quarter illustrated that our restart team is executing well. Despite these uncontrollable labor market challenges presently referral volumes and job starts are performing across the market above our customer's revised expectations.

Presently, referral volumes and job starts are performing across the market above our customers' revised expectations.

As a result, we continue to expect to achieve break-even in the second half of FY22.

As a result, we continue to expect to achieve breakeven in the second half of fiscal year 'twenty two.

Together with other suppliers, we will continue to work with our customer in the coming months to bring clarity to this dynamic situation and the longer-term expectations for the program.

Together with other suppliers, we will continue to work with our customer in the coming months to bring clarity to this dynamic situation and the longer term expectations for the program.

I will now turn to new awards and pipeline as of December 31st.

For the first quarter of fiscal 2022, signed awards were $454 million of total contract value at December 31, 2021, of which only a small portion includes short-term COVID work.

For the first quarter of fiscal 2022 signed awards were $454 million of total contract value at December 31, 2021 of which only a small portion includes short term COVID-19 work.

Further, at December 31st, there were another $1.16 billion worth of contracts that have been awarded but not yet signed.

Further at December 31, there were another $1.16 billion worth of contracts that had been awarded but not yet signed.

let's turn our attention to our pipeline of addressable sales opportunities.

Let's turn our attention to our pipeline of addressable sales opportunities.

Our total contract value pipeline at December 31st was $33.2 billion, compared to $33.9 billion reported in the fourth quarter of fiscal 2021.

Our total contract value pipeline at December 31 was $33.2 billion compared to $33.9 billion reported in the fourth quarter of fiscal 2021 .

The December 31st pipeline is comprised of approximately $8.9 billion in proposals pending, $2.4 billion in proposals in preparation, and $21.8 billion in opportunities tracking.

The December 31st pipeline is comprised of approximately $8.9 billion in proposals pending $2.4 billion in proposals and preparation and $21.8 billion in opportunities tracking.

Of our total pipeline of sales opportunities, 62% represents new work.

We continue to be pleased with the integration of our recent acquisitions. We are investing in VES with technology and people to support addressing the inventory of exams and future anticipated demands.

We continue to be pleased with the integration of our recent acquisitions. We are investing in V S with technology and people to support addressing the inventory of exams and future anticipated demand.

Our team is focused on enhancing the veteran experience by working with partners on implementing best practices across the program.

As for the Attain federal acquisition, we are executing on technology bids through the Alliant 2 contract vehicle, which is precisely what we hope to see by merging our two companies. Attain brought additional technology capabilities while Maximus offers access to desirable contract vehicles that enable us to expand the business together.

As for the attain federal acquisition, we are executing on technology bids through the Alliant two contract vehicle, which is precisely what we hope to see by merging our two companies.

Attained brought additional technology capabilities, while Maximus offers access to desirable contract vehicles that enable us to expand the business together.

Turning to advantage the delayed resumption of federal student loan repayment obligations now scheduled for May 1st helps us further prepare to support student loan borrowers and the FSA when the extended pause and in the meantime, we are number one.

Turning to Advantage, the delayed resumption of federal student loan repayment obligations now scheduled for May 1st helps us further prepare to support student loan borrowers and the FSA when the extended pause ends. In the meantime, we are number one.

Training employees and establishing protocols that will help us meet or exceed new higher performance standards established by the FSA. And, number two, reviewing and processing work on loans being transferred to Advantage to better ensure accuracy and ease the borrower transition to return to repayment experience.

Training employees and establishing protocols that will help us meet or exceed new higher performance standards established by the FSA and number two reviewing and processing work on loans being transferred to advantage to better ensure accuracy and ease the borrower transitioned to returned to repayment experience.

We are seeing these acquisitions together with organic growth in areas like Medicaid long-term care assessments as evidence of successful execution on our three-pronged strategy established in mid-2018.

We are seeing these acquisitions together with organic growth in areas like Medicaid long term care assessments as evidence of successful execution on our three pronged strategy established in mid 2018.

As I mentioned last quarter, we are simultaneously looking forward at how we can further leverage our capabilities and expand our total addressable market. As a result, leadership across Maximus has been working diligently on the evolution of our longer-term three- to five-year strategy.

As I mentioned last quarter, we are simultaneously looking forward at how we can further leverage our capabilities and expand our total addressable market as a result leadership across Maximus has been working diligently on the evolution of our longer term three to five year strategy.

We aim to ensure our strategic pillars, operational capabilities, and organizational model are congruent with our plan to deliver ongoing shareholder value through reliable, organic growth, and margin expansion in the coming year.

We aimed to ensure our strategic pillars operational capabilities and organizational model are congruent with our plan to deliver ongoing shareholder value through reliable organic growth and margin expansion in the coming years.

You can expect to see the next phase of our current strategy incorporate a continuation of key elements such as digital solutions to enhance the customer experience and clinical services to address evolving government priorities.

We also will provide additional clarity around our expanded vision for Maximus as a sought-after provider of innovative technology solutions that address the mission priorities of our government customers. Particularly in...

We also will provide additional clarity around our expanded vision for Maximus as a sought after provider of innovative technology solutions that address the mission priorities of our government customers, particularly in the federal marketplace.

I'm excited to share in more detail the next phase of our strategic growth plan at our upcoming Investor Day, which will shortly follow our second quarter Fiscal Year 22 earnings call.

I'm excited to share in more detail. The next phase of our strategic growth plan at our upcoming Investor day, which will shortly follow our second quarter fiscal year 'twenty two earnings call.

We continue to expect a solid second half of fiscal year 22, creating positive momentum into fiscal year 23. As David has noted, we continue to operate in a very dynamic environment compared to the pre-pandemic period.

We continue to expect a solid second half of fiscal year, 'twenty to creating positive momentum into fiscal year 'twenty three.

As David has noted we continue to operate in a very dynamic environment compared to the pre pandemic period.

While our expectations for fiscal 2022 would be negatively impacted by potential further changes in the timeline to unwind the PHE. So too, our positive opportunities created to respond to the changing needs of our customers, as was evidenced in this first quarter.

While our expectations for fiscal 2022 would be negatively impacted by potential further changes in the timeline to unwind. The P. E. T. So too are positive opportunities created to respond to the changing needs of our customers as was evidenced in this first quarter.

In light of the Omicron variant and a hold on the Biden administration's vaccine mandate for businesses with more than 100 employees, we continue to prioritize employee and workplace safety and well-being, as well as actively monitor guidance and update our procedures accordingly, as we have throughout the pandemic.

In light of the Omicron variant and a hold on the Biden administrations vaccine mandate for businesses with more than 100 employees. We continue to prioritize employee in workplace safety and wellbeing as well as actively monitor guidance and update our procedures accordingly, as we have throughout the pandemic.

Additionally, over fiscal year, 'twenty, 'twenty, one and 2022 as many industries face labor market competition, including ours, we have invested in employee benefit enhancements, including our increased 401k match expanded health benefits and our newly launched employee assistance fund to provide financial assistance when they are.

Additionally, over fiscal year 2021 and 2022, as many industries face labor market competition, including ours, we have invested in employee benefit enhancements, including our increased 401k match, expanded health benefits, and our newly launched employee assistance fund to provide financial assistance when the unexpected occurs.

Unexpected occurs and.

And with that, we will open the line for Q&A. Operator.

And with that we will open the line for Q&A operator.

Thank you the floor is now open for questions. If he would like to ask a question. Please press star one on your telephone keypad.

Thank you. The floor is now open for questions. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone was that indicate that your mind is in the question queue. You may press star two if you would like to move your question from the queue. We do ask that you please limit yourself to one follow-up question so that others may have an opportunity to ask questions.

Formation tone was it indicate that you remind us in the question queue. You May press star two if he would like to remove your question from the queue.

We do ask that you. Please limit yourself to one follow up question. So that others may have an opportunity to ask questions. You may reenter the queue by pressing star one our first question today is coming from Charlie Strausser of CJS Securities. Please go ahead.

Our first question today is coming from Charlie Strasser of C.J. of Security. Please go ahead.

Hi, good morning.

Good morning, Charlie.

I was wondering if you could walk us through a little bit more about the EBITDA guidance, obviously, you're you've got some increase our revenue on the top line, but you kept the EPS. The same I know you talked about.

I was wondering if you could walk us through a little bit more about the guidance. Obviously, you've got some increased revenue on the top line, but...

same. I know you talked about some various factors underlying. They are kind of keeping that, you know, but, you know, first is prior guidance. You know, maybe you could...

Yes on various factors underlying the <unk>.

You're kind of keeping that flat.

Versus prior guidance, maybe you could.

And a little bit further on that and give us a little more color there.

Hi, Charlie.

Absolutely.

Sure, Yeah, Hey, Charlie as I mentioned on the call the increase in revenue guidance, it's really driven by more contribution from Covid response work and these have been offset on the bottom line by several headwinds in the core business. It's worth pointing out that the headwinds I mentioned tend to have a disproportionate bottomline impact and those would include the day.

Sure, yeah, Charlie. As I mentioned on the call, the increase in revenue guidance is really driven by more contributions from COVID response work. And needs have been offset on the bottom line by several headwinds in the core business. It's worth pointing out that the headwind, I mentioned, tend to have a disproportionate bottom line impact. And those would include the delay and redeeterminations caused by the PHE extension, the new non-COVID-related work that has started, but it's ramping at a slower rate.

Les and Redetermination is caused by the Phe extension.

The new non Covid related work that has started but it's ramping at a slower rate.

and third, the reduced forecast for employment services programs in the UK and Australia. That forecast was really the main driver behind us reducing the outside of the U.S. full-year margin guidance, which is now in the 1-3% range.

And third the reduced forecast for employment services programs in the UK and Australia.

That forecast was really the main driver behind us reducing the outside the U S full year margin guidance, which is now in the 1% to 3% range.

Thanks, Charlie do you have a follow up.

Yes, on the PDG extension in service.

Yes on the <unk>.

P G extension.

I think you said may.

you know, how are you factoring in further potential delays?

How are you factoring in or further potential delays.

in your guidance and how could that impact guidance going forward if it's delayed?

In your guidance.

How could that.

Actually it impact guidance going forward.

Delayed.

So, Charlie, why don't I start by just providing some context and a bit of an update.

Sure. So Charlie it's Bruce why don't I start by just providing some context and a bit of an update.

where the P.H.E. extension has gotten a lot of coverage recently. Most recently, in fact, on Tuesday, what it go ran a great article about this, talking about how 15 million Americans that are on Medicaid presently could face reductions in coverage. So let me catch both up in terms of what we've been up to.

The Phe extension has.

A lot of coverage recently, most recently in fact on Tuesday, Politico ran a great article about this talking about 15 million Americans that are on Medicaid.

Reductions in coverage. So let me catch folks up in terms of what we've been up to and what we're hearing.

This is the last quarter we've spent a significant amount of time with our current state customers and others.

Since the last quarter, we've spent a significant amount of time with our current state customers and others really assessing the state of readiness.

really accepting the state of writing and for what's become known now is in the jargon and the scene of the THM winding.

Or what's become known.

In.

The jargon.

On one.

We've also engaged with CMS directly. This is a big priority for the Biden administration.

We are also engaged with CMS directly.

A big priority for the vitamin illustration.

And what we're seeing interestingly is that a number of states are taking initial steps to prepare for the unwinding by verifying beneficiary information, such as address and so forth through mailings and outreach and engagement without processing any case changes with the expectation that.

What we're seeing interestingly that a number of states are taking initial steps to prepare for the unwinding by verifying beneficiary information such as address and so forth.

Through mailings and outreach and engagement without processing any case changes with the expectation that.

Okay changes you wouldn't be able to begin processing case, Jayson changes until the first of May because as you know the current extension would extend through mid April April 16.

case changes you wouldn't be able to begin processing case changes until the first of May because as you know the current extension would extend through I think Smith-Ville for like

The level of activity that we're seeing across states is consistent with an expectation that the P.H.E. will Unwind, you know, as of April 16th, state-to-region processing case actions that Zeroy has made and that ultimately faking drawdown as you may recall being enhanced federal matching funds, which were bumped up by 6.2 percent. So the end of the quarter in which the P.H.E. up is unwound.

The level of activity that we're seeing across basis.

With an expectation that the phe will unwind as of April 16 States will begin processing case actions as early as May add.

And that ultimately.

Baking drawdown as you as you may recall, we enhanced federal matching funds.

Were bumped up by six 2% so at the end of the quarter in which the phe is unwound.

Interestingly, I saw them press yesterday where there was talk about, like, let's get on with this, let's get this on line to PHE. And even some discussion about whether Congress might decouple the Medicaid requirement for what's really underlying this is the maintenance of effort requirement for Medicaid that's part of the public health emergency. That Congress could consider decoupling that from other elements of the public health emergency.

Interestingly.

<unk>.

Yesterday, where there was talk about like let's get on with this let's get the but.

Unwinding Phe and even some discussion about whether congress by decouple, the Medicaid requirement for the what's really.

Underlying this is the maintenance maintenance divestment requirement for Medicaid as part of the public health emergency that Congress could consider decoupling that from other elements.

Urgency so that states could proceed what states that have asked for more than anything with claret.

so that space could proceed. What space have asked for more than anything is clarity.

on what the date certain will be when they can begin to take these actions. Now, how will state's response? Some states will work quickly to complete case actions and eligibility determinations to ensure program integrity of their Medicaid roles and moving to the digital's off-medicates in a longer fall by. So I'm in a very short amount of time.

On Wednesday.

The date certain will be Wednesday, and begin to take these actions now how allstate's response, some states will.

We'll work quickly to a complaint case actions and deter eligibility re determinations.

You too.

In short program integrity of their Medicaid rolls and move individuals' off mitigate if at all.

I mean, a very short amount of time and other states that we've talked to have said, we're going to run. This as we would a normal redetermination process in any year and spread it out over 12 months, so that theres not a bulge in work or our workforce, while it will be a significant increase in work they want a level loaded if you will over the course of the year.

Other states that we've talked to have said, we're going to run this as we would a normal redetermination process in any year and spread it out over 12 months. So that there's not a bulge in work for our workforce. While it will be a significant increase in work, they want to level load it if you will, over the course of the year.

The other final element to keep in mind is that the state systems that support the eligibility processes having been modified in order to accommodate this suspension. And then they have to be obviously modified again to reactivate the process using work clothes so forth to get re-determinations going. Often it's easier for states to effectively restart a process that was well established previously that maybe level loaded over the fall fund.

Other final element to keep in mind is that the state systems that support the eligibility processes have to be modified in order to accommodate the suspension and then they have to be obviously modified again to reactivate the process, even workload and so forth to get redetermination going often it's easier for states to effectively reach.

Startup process that was well established previously that may be level loaded.

then necessarily modify systems even further to handle something in a short amount of time.

That unnecessarily.

Modify systems, even further to handle something in a short amount of time, so with all of that.

So with all that, it's a bit of a mixed bag in terms of state timing. I think the big lesson that we've been picking up is that this work is something that's going to extend through, in many instances, through the end of this fiscal year and in the next year. So with that, as background line turned it over to David for more.

It's bit of a mixed bag in terms of state timing I think debate lesson that we've been picking up is that this work is something that is going to extend.

True in many instances through the end of this fiscal year and into next year, so with that as background why I'll turn it over to David for more color.

Yeah, thanks, Chris. The first, I would say, at this point in the year, another extension would likely put as at risk of not making guidance, given the short runway we have. So as we saw this quarter, higher levels of COVID response work helped offset the most recent delay, which was effectively a one month change from our prior assumption. We have caution that the PHE delay and the COVID response work are not necessarily two factors that coincide in time.

Yeah. Thanks, Chris So first I would say at this point in the year, another extension would likely put us at risk of not making guidance.

Given the short run away we have so as we saw this quarter higher levels of Covid response work helped to offset the most recent delay which was effectively a one month change from our prior assumption.

We have cautioned that the phe delay in our Covid response work are not necessarily two factors that coincide and timing we.

We do continue to view extensions as only delays to resume the core work, recognizing that the redeternation is really a fundamental part of the Medicaid programs. And then I'd echo what Bruce said that we see it now less of a short-term surge that we would expect for more of a phasing end that would carry it well into 2023.

We do continue to view adventures as only delayed tourism in our core work recognizing that the Redetermination is there really a fundamental part of the Medicaid program.

So what Bruce said that we see it now less of a short term surge that we would expect more of a phasing and that would carry us well into 2023.

Thanks, Charlie operator back to you next question. Please. Thank you once again that is star one if you would like to register a question. Our next question is coming from Donald Hooker of Keybanc capital markets. Please go ahead.

Thanks, Charlie. Operator, back to you. Next question, please. Thank you. Once again, that is Star One, if you would like to register a question. Our next question is coming from Donald Hooker of Keybank Capital Markets. Please go ahead.

Donald Please make sure your phone is not on mute on your side.

I'm, sorry, I was on mute.

I'm sorry, I was on mute. I apologize about that. Good morning, everyone. I hope you can hear me now. I wanted to kind of step back and hear your perspective on kind of maybe kind of the, maybe the bigger picture growth rate you expect maximums to be able to generate. I'm hearing from your prepared comments that it sounds like you're getting some nice conversion of some of that temporary COVID work into permanent work in some new areas with states. And I'm wondering,

Apologize about that good morning, everyone. I Hope you can hear me now I.

I wanted to kind of step back and hear your perspective on kind of maybe kind of the maybe the bigger picture growth rate, you expect maximus to be able to generate.

I'm hearing from your prepared comments that it sounds like you're getting some nice conversion of some of that temporary COVID-19 work into permanent work in some new areas with states and I'm wondering.

I mean to what extent you can kind of maybe.

I mean, to what extent you can maybe keep quiet, you know, maybe directionally kind of give us some direction around kind of what the right growth rate is for maximum summing out of COVID.

You know, maybe directionally kind of give us some direction around kind of what what the right growth rate is for Max is coming out of Covid.

Absolutely Dan It's Bruce why don't I begin again by kind of setting the context, and then ask David to provide some more specificity in terms of the growth rate itself.

Absolutely. Done. It's Bruce. One of my begins again by kind of setting the context and then I've given to provide some more specific things

I begin by telling you that my bolstice on growth in our US federal services has not

I begin by telling you that my bullishness on growth in our U S. Federal.

It has not changed we've already seen year over year organic growth, probably yes, and we expect that the team is going to continue to grow as planned as they have access to broader contract vehicles like Alliant two as I mentioned in my prepared remarks that our marketplace is also the largest marketplace in the world. We think there is meaningful open space for us to grow into.

We've already seen year-over-year organic growth from VES, and we expect that a team is going to continue to grow as planned. As they have access to broader contract vehicles like Alliance 2, as I mentioned, that prepare remarks.

Federal marketplace is also the largest marketplace in the world. We think there's meaningful open space for us to grow into.

More recently, I've also been very pleased with the organic growth that we've been able to generate in the US services second. And certainly, if we were to compare this to the pre-pandemic period.

More recently I've also been very pleased with the organic growth that we've been able to generate in U S services segment and certainly if we were to compare this to the pre pandemic period.

We've been capitalizing on new relationships and contracts over the past several years as we've said before we were able to pick up work with 15 different states doing unemployment insurance work a good bit of that work has recently transitioned into more of a longer term work such as I mentioned in my prepared remarks, so those longer term opportunities become.

We've been capitalizing on new relationships and contracts over the past several years. As we've said before, we were able to pick up work with 15 different states doing unemployment insurance work. A good bit of that work has recently transitioned into more longer term works that I mentioned in my prepared remarks. So those longer term opportunities become a bit of the engine of organic growth in the US services sector.

The engine of organic growth in U S services segment.

I'm also sensing that states are becoming more and more comfortable with the variable cost model that we provide and the accountability that we have to deliver outcome.

I am also something that states are becoming more and more comfortable with the variable cost model that we provide and the accountability that we have to deliver outcomes and we then become kind of top of mind for further work. So for example, historically the labor Department's really didn't work a lot with private partners like Maximus and then with the pandemic.

and we then become on top of buying for further work.

So for example, historically the labor departments really didn't work a lot with private partners like Maximus and then with the pandemic, they were enabled to do that true legislation that allowed them the flexibility to contract with private partners and other they've had that experience.

They were enabled to do that through legislation that allows them the flexibility to contact with private partners and now that they've had that experience.

Given what we see in the economy with tighter labor markets workforce at the state level that is retiring, perhaps disproportionately to other industries, the inability sometimes to hire a more permanent workforce to handle seasonal demands and so forth of these programs creates a great environment for maximums to help out.

Given what we see in the economy.

Tighter labor markets.

Workforce at the state level that are retiring.

<unk> disproportionately to other industries inability sometime to hire a more permanent workforce.

Handle seasonal demands and so forth that these programs create a great environment for Maximus to help out.

And I would say that the work, for example, that we've been able to do in Arkansas is a direct reflection of number one successful firework we did for that client, but also the core skills that we have in areas related to citizen engagement, eligibility, data collection, and eligibility determination, core state programs, which of course are core needs of this PhD on binding. They will be on an ongoing basis in Medicaid and other programs well into the future.

And I would say that the work for example that we've been able to do on Arkansas is a direct reflection of number one successful fire work, we did for that client, but also the.

CT skill set that we have in areas related to citizen engagement eligibility data collection and eligibility determination.

Or state programs, which of course, our core core needs of this phe unwinding it won't be on an ongoing basis, and Medicaid and other programs well into the future. So I would summarize that by saying I don't think it's just current conditions that have created that growth that organic growth opportunity in the U S services segment that more of a bit of a structural shift.

So I'd summarize that by saying, I don't think it's just current conditions that have created that growth, that organic growth opportunity in the US services segment, but more of a bit of a structural shift that's enabled states to become more comfortable with and desire contracting with partner-like activists. And I think that has the potential to deepen, given those underlying kind of policy, demographic, economic and labor market conditions that we see going forward. So now what's that mean in terms of those rates? I'll turn it over to this.

That's enabled states to become more comparable with a desire of contracting with partner.

Accurate, but I think that has the potential to deepen even though the underlying kind of policy demographic economic and labor market conditions that we see going forward. So now what's that mean in terms of growth rate I'll turn it over to David sure. Thanks. So I'll just I'll just add that we continue to target sustainable mid single digit organic growth in the long term, which.

Sure, thanks. I'll just I'll just add that we continue to target sustainable mid-single digit organic growth in the long term.

which we do believe are markets and are positioning support. That said, the normalized organic growth of 9% in the December quarter, as well as our fiscal year 22 guidance suggests that we have line-up by to exceeding that level in the near term, albeit that's adjusted for the runoff of the short-term COVID work.

Which we do believe our markets and our positioning support that said the normalized organic growth of 9% in the December quarter as well as our fiscal year 'twenty. Two guidance suggests that we have line of sight to exceeding that level in the near term, albeit that's adjusted for the run off of the short term Covid work.

Thanks, Don do you have a follow up great.

Yeah, I'll ask one more on the call side. How could you just maybe walk through your various contract structures and how you're protected against maybe some of the inflationary pressures we're seeing across a lot of the companies recover?

Yeah, I'll ask one one more on the cost side and how can you just maybe walk through your various contract structures and how you are protected against maybe some you know some of the inflationary pressures we're seeing.

Across a lot of the companies we cover.

Sure we'd be happy to do that Don and in fact, why don't I.

Sure, we'd be happy to do that, and in fact, one of the things I begin by, again, providing a little market context and focus on labor market challenges, right? That's really the main area of cost. It's a cost, right? It's a labor-strict labor, which is a very large cost. In some, and indeed, it's a little extra more color. In some areas, we are seeing tightness in the labor market that's impacting our ability to attract and retain talent. It's more the case we're finding with technical skills and clinical.

Begin by again, providing a little market context.

Our focus on labor market challenges right, because that's really the area of importance for us.

Right exactly they are restricted.

So in sum and then David.

More color in some areas, we are seeing tightness in the labor market, that's impacting our ability to attract and retain talent.

The case, we're finding with technical skills and clinical scale and less so.

And let's go in the core call center business and labor, you know, customer service representatives and so forth. There's a well-known nursing shortage, for example, out there that's very well documented.

<unk> core call center business, and labor customer service Representatives, and so and so forth.

There is a well known nursing shortage for example out there.

That's very well documented.

At the same time I think <unk> is very much established itself as a very strong talent brand and if anything we've strengthened that over the last year with.

At the same time, I think Faxman has very much established itself as a very strong talent brand. And if anything, we've strengthened that over the last year.

With the benefits and programs that we quickly implemented to support and protect our people.

Our matching new ways of implementing new ways of working that leverage our footprint differently enable people to have a lot more flexibility and work from home.

are put quite differently, enable people to have a lot more flexibility and work from home and many instances. And I think that better conditions us over the longer term to be a very attractive employer for that kind of talent. I look for proof points and evidence for this all the time. And you know, for example, we recently, I mentioned briefly, we recently took on some additional work under our CDD contract to support the administration's priorities. And we needed to enforce it a week higher, 852,000 agents in a work from home model and manage them to handle calls and data.

And I think that better positions us over the longer term to be a very attractive employer for that kind of talent.

Look for proof points and evidence of this all the time.

For example, we recently I mentioned briefly we recently took on.

Some additional work under our <unk> contract to support the administration's priorities and we needed to in the course of a week higher 850 to 1000 agents in the work a model and manage that to handle calls and that was not a problem whatsoever. So I feel good about our ability to attract talent I will.

And we needed to in the course of a week hire 852,000 agents in a work from a model and manage them to handle calls. And that was, you know, not a problem whatsoever. So I feel good about our ability to attract talent. I will say that.

Say that we have.

We have to continually monitor and evaluate our risks and opportunities related to the labor market. And we focus on our human resources investment, trying to position ourselves well at the employer of choice. But it is more challenging market as it relates to technical consulting skills and clinical skills we are seeing.

Have to continually monitor and evaluate our risks and opportunities related to the labor market and we focus on our human resources investment tried to position ourselves well.

Lawyer choice, but it is.

More challenging market as it relates to technical consulting skills and clinical skills, we're seeing David.

Yeah, the first thing I should add is that we did consider pressure from rising wages in our guidance range. The fact is that wages are rising across industries and our competitors face the same pressures, which does suggest that we should be able to price in higher wages over time.

Yeah. The first thing I should add is that we did consider pressure from rising wages in our guidance range. The fact is that wages are rising across industries and our competitors face the same pressures, which does suggest that we should be able to price them higher wages overtime as far as the impact on our business. It does depend a bit on the skill set and question on the <unk>.

As far as the impact on our business, it does depend a bit on the skill setting question. On the technical talent side, the impact generally is the opportunity caused to block billable hours on time and material contracts that will not be able to hire quickly.

Technical talent inside the <unk>.

Impact generally is the opportunity cost of lost billable hours on time and material contract that was not able to hire quickly.

Whereas on the clinical side, the wage pressures and shortages of staff carried both the opportunity cost to foregone assessment volumes, which generally would just move to the right. And in some cases, margin pressure due to previously negotiated fixed unit rates.

Whereas on the clinical side.

The wage pressures and shortages of staff carried both the opportunity cost of foregone assessment volumes, which generally will just move to the right.

Some cases margin pressure due to previously negotiated fixed unit rate.

Again, to the best of our ability, we baked the bento or guidance that we provided.

Again to the best of our ability we baked this into our guidance that we provided.

and thanks, John . You know, we're happy to take one more from you at this time. Otherwise, if you're good, I'll go back to the operator. We don't see anyone more in the queue.

And thanks Don.

We're happy to take one more from you at this time otherwise if you go ahead I'll go back to the operator, we don't see anyone in the queue.

I think I think I'm good for now. Thank you. Great. Thank you, Bob.

I think I think I think I'm good for now thank you.

Great. Thank you operator back to you.

Thank you ladies and gentlemen, thank you for your participation and interest in Maximus you may disconnect your lines or walk off the webcast at this time and enjoy the rest of your day.

Thank you, ladies and gentlemen. Thank you for your participation and interest in Maximus. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.

Okay.

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The.

Yeah.

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