Q1 2024 Maximus Inc Earnings Call
Okay.
Greetings and welcome to Maximus fiscal 'twenty 'twenty, four first quarter earnings conference call.
Operator: Greetings and welcome to Maximus' Fiscal 2024 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode.
At this time all participants are in a listen only mode.
Jessica Batt: 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, Jessica Batt, Vice President of Investor Relations and ESG at Accra. Thank you.
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 Jessica bat, Vice President of Investor Relations and ESG for Maximus. Thank you. Mrs back you may begin.
Good morning, and thanks for joining US with me today is Bruce Caswell, President and CEO, David in your trend Who's CFO and James France, as Vice President of Investor Relations.
Jessica Batt: Good morning, and thanks for joining us. With me today are Bruce Caswell, President and CEO, David Muetren, 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.
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 as a result of risks we face, including those discussed in item one a of our most recent forms 10-Q and 10-K.
Jessica Batt: Actual events and results may differ materially as a result of the risks we face, including those discussed in Item 1A of our most recent Forms 10-Q and 10-K. We encourage you to review the information contained in our recent filings with the SEC and our earnings press release. 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, highlighting 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, Jessica, and good morning.
We encourage you to review the information contained in our recent filings with the FCC and our earnings press release.
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. Todays presentation. Also contains non-GAAP financial information management uses this information internally to analyze results and believes it may be informative to investors.
Engaging the quality of our financial performance identifying trends and providing meaningful period to period comparison.
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, Jessica and good morning, we are pleased to report a strong first quarter as well as an improved outlook for margins earnings and free cash flow for the full year. Our operational performance has been excellent and our dedicated teams are meeting our customers' increasing demand and complex areas, including Medicaid Redetermination.
David Muetren: We are pleased to report a strong first quarter, as well as an improved outlook for margins, earnings, and free cash flow for the full year. Our operational performance has been excellent, and our dedicated teams are meeting our customers' increasing demand in complex areas, including Medicaid redeterminations and veteran exams. The business is on solid footing with the ability to be resilient in an environment with budget uncertainty and capable of further margin expansion on top of demonstrated progress so far. Moving to results, Maximus reported revenue of $1.33 billion for the first quarter of fiscal year 2024, which represents 6.2% year-over-year growth. Organic growth was 6.9%, driven by expanded programs in the U.S. Federal Services segment and a combination of resumed and expanded programs in the U.S. Services segment. Adjusted Operating Income Margin was 9.9%, and Adjusted EPS was $1.34 for the quarter, which compares to 7.9% and $0.94, respectively, for the prior year period. Earnings exceeded our forecast for the quarter, driven by performance across the segments. I'll turn now to commentary on each.
Veteran exam.
The business is on solid footing with the ability to be resilient in an environment with budget uncertainty and capable of further margin expansion on top of demonstrated progress so far.
Moving to results Maximus reported revenue of $1.33 billion for the first quarter of fiscal year, 'twenty, 'twenty, four which represents six 2% year over year growth.
Organic growth was 6.9% driven by expanded programs in the U S. Federal services segment and the combination of resumed and expanded programs in the U S services segment.
Adjusted operating income margin was nine 9% and adjusted EPS was one dollar and 34 cents for the quarter, which compares to seven 9% and 94 cents respectively for the prior year period earned.
Earnings exceeded our forecast for the quarter driven by performance across the segments I'll turn now to commentary on each.
For the U S. Federal services segment revenue increased nine 5% to $677 million, which was all organic and driven by volume growth on expanded programs, including the VA medical disability examination or M. D E contracts.
David Muetren: For the U.S. Federal Services segment, revenue increased 9.5% to $677 million, which was all organic and driven by volume growth on expanded programs, including the VA Medical Disability Examination, or MDE, contract. The operating income margin for the segment was 10.2%. The prior year's first quarter's margin of 8.3% largely reflected hiring in advance of the VA volumes that are now flowing through our operation. Segment income results for the first quarter of this year align to our previously communicated expectations for an improving margin across the full year. For the U.S. services segment, revenue increased 11.5% to $490 million and was also all organic.
The operating income margin for the segment was 10.2%.
The prior year's first quarters margin of eight 3% largely reflected hiring in advance of the VA volumes that are now flowing through our operations.
Segment income results for the first quarter of this year aligned to our previously communicated expectations for an improving margin across the full year.
For the U S services segment revenue increased 11.5% to $490 million and was also all organic the drivers where the resumption of Medicaid redetermination activities as well as expanded programs and eligibility support and clinical services as a reminder, the redetermination.
David Muetren: The drivers were the resumption of Medicaid redetermination activities, as well as expanded programs in eligibility support and clinical services. As a reminder, the redetermination activities are helping the top line but have a disproportional impact on the bottom line due to improved operating leverage. The U.S. services operating income margin was 13.5% in the first quarter of this year.
Activities are helping the top line, but have a disproportional impact to the bottom line due to improved operating leverage.
The U S services operating income margin was 13.5% in the first quarter of this year the margin of eight 6% in the first quarter of last year reflected paused redetermination activities. We view the 13.5% margin. This quarter is the high watermark for this segment for the near term and expect them.
David Muetren: The margin of 8.6% in the first quarter of last year reflected paused redetermination activity. We view the 13.5% margin this quarter as a high watermark for the segment for the near term and expect modest margin normalization in the remainder of the fiscal year. Turning to the Outside the U.S. segment, revenue decreased 16% year-over-year to $160 million for the first quarter of this year.
Modest margin normalization in the remainder of the fiscal year.
Turning to outside the U S segment revenue decreased 16% year over year to $160 million for the first quarter of this year.
David Muetren: Of that, approximately 7% was attributable to divested businesses no longer in the portfolio. The other 9% was a combination of slightly lower volumes on employment services contracts and currency impact. The segment broke even in the first quarter of this year as compared to an operating margin of 5.3 percent in the first quarter of last year, which reflected healthier employment services volumes. We remain focused on expedited efforts to reduce volatility and yield a desired portfolio capable of delivering consistent profitability. This process remains a priority for us this fiscal year. Turning to cash flow items, cash provided by operating activities was $22 million, and free cash flow was an outflow of nearly $1 million for the quarter ended December 31, 2023. First quarter cash flows reflected expected seasonality around the timing of payments that we tend to have in this quarter.
Of that approximately 7% was attributable to divested businesses no longer in the portfolio. The other 9% was the combination of slightly lower volumes unemployment services contracts and currency impacts.
The segment broke even in the first quarter of this year as compared to an operating margin of five 3% in the first quarter of last year, which reflected healthier employment services volumes, we remain focused on expedited efforts to reduce volatility and yield a desired portfolio capable of delivering consistent profitability.
This process remains a priority for us this fiscal year.
Turning to cash flow items cash provided by operating activities was $22 million and free cash flow was an outflow of nearly $1 million for the quarter ended December 31 2023.
First quarter cash flows reflected expected seasonality around timing of payments that we tend to have in this quarter. Our collections remained on target and our days sales outstanding were a healthy 59 days, we are increasing our free cash flow expectations for the remaining quarters, which I'll speak to during updated guidance.
David Muetren: Our collections remained on target, and our day sales outstanding were a healthy 59 days. We are increasing our free cash flow expectations for the remaining quarters, which I'll speak to during updated guidance. From a balance sheet perspective, we finished the December quarter with total debt of $1.32 billion.
From a balance sheet perspective, we finished the December quarter with total debt of $1.32 billion, our net debt to EBITDA ratio improved from 2.2 times last quarter to 2.1 times as we continue to move towards the lower end of our target range of two to three times as a reminder.
David Muetren: Our net debt to EBITDA ratio improved from 2.2 times last quarter to 2.1 times as we continue to move towards the lower end of our target range of 2 to 3 times. As a reminder, this ratio is our debt net of allowed cash to adjusted EBITDA for the last 12 months as calculated in accordance with our credit agreement. As I articulated on the last call, beyond organic investments, our priorities for capital deployment are maintaining a dividend that grows with earnings and strategic acquisitions intended to accelerate organic growth. I should note that M&A opportunity evaluation remains an important part of our normal activities, and we remain opportunistic on deals that come to market in the future. In the meantime, we plan to continue to delever and build capacity. I'll finish with 2024 updated guidance, where we are raising earnings and free cash flow projections and reaffirming revenue guidance of $5.05 to $5.2 billion. Adjusted EPS, excluding intangibles amortization and divestiture-related charges, is now projected to be between $5.20 and $5.50 per share.
This ratio as our debt net of allowed cash to adjusted EBITDA for the last 12 months as calculated in accordance with our credit agreement.
As I articulated on the last call beyond organic investments our priorities for capital deployment are maintaining a dividend that grows with earnings and strategic acquisitions intended to accelerate organic growth I should note that M&A opportunity evaluation remains an important part of our normal activities and we remain opportune.
Stick on deals that come to market in the future in the meantime, we plan to continue to Delever and build capacity.
I'll finish with 2024 updated guidance, where we are raising earnings and free cash flow projections, and reaffirming revenue guidance of $5.05 billion to $5.2 billion.
Adjusted EPS, excluding intangibles amortization and divestiture related charges is now projected to be between $5.20.
And $5.50 per share.
This reflects a 15 cent raise from prior guidance adjust.
David Muetren: This reflects a 15% raise from prior guidance. Adjusted operating income is estimated to be between $503 million and $528 million, which is an increase of $15 million from prior guidance. As a result of the improved earnings forecast, we are raising free cash flow guidance by $10 million to between $300 and $350 million for fiscal 2024. The improved earnings outlook is driven by higher margin expectations. At the guidance midpoint, the adjusted OI margin is 10.0%, up from 9.8% in prior guidance.
Adjusted operating income is estimated to be between $503 million and $528 million, which is an increase of $15 million from prior guidance.
As a result of the improved earnings forecast, we are raising free cash flow guidance by $10 million to between 300 and $350 million for fiscal 'twenty 'twenty four.
The improved earnings outlook is driven by higher margin expectations at the guidance midpoint adjusted Oi margin is 10.0% up from 9.8% in prior guidance across the rest of the year, we expect a positive trend driving consolidated margins above 10% in Q3 and Q4 reflects.
A combination of strong volumes on our portfolio of performance based contracts as well as disciplined cost management.
David Muetren: Across the rest of the year, we expect a positive trend driving consolidated margins above 10% in Q3 and Q4, reflecting a combination of strong volumes on our portfolio of performance-based contracts, as well as disciplined cost management. For the U.S. services segment, we now expect the margin to run between 11 and 12 percent for the remaining quarters, which is notable because any temporary redetermination surge benefit will be finished as we enter the back half of the year. And given the strong Q1, the segment should land near the high end of that range for the full year. For the U.S. federal segment, consistent with prior guidance, we still expect OI margins between 11 and 12 percent on a full-year basis, meaning growth across the remaining quarters from this quarter is 10.2 percent.
For the U S services segment, we now expect the margin to run between 11 and 12% for the remaining quarters, which is notable because any temporary redetermination surge benefit will be finished as we enter the back half of the year.
And given the strong Q1 this segment should land near the high end of that range on a full year basis.
For the U S Federal segment consistent with prior guidance, we still expect OE margins between 11, and 12% on a full year basis, meaning growth across the remaining quarters from this quarter is 10.2%.
We still expect outside the U S to be slightly above breakeven for the full year amidst our ongoing commitments to shape. This segment to deliver consistent profitability.
A few other assumptions for fiscal 'twenty 'twenty four include interest expense of approximately $73 million approximately $88 million for intangibles amortization, our full year effective income tax rate of between 24.5, and 25.5% and weighted average shares outstanding between 60.
2.0, and 62.2 million.
David Muetren: We still expect Outside the U.S. to be slightly above breakeven for the full year amidst our ongoing commitments to shape the segment to deliver consistent profitability. A few other assumptions for fiscal 2024 include interest expense of approximately $73 million, approximately $88 million for intangibles amortization, a full-year effective income tax rate of between 24.5 and 25.5 percent, and weighted average shares outstanding between 62.0 and 62.2 million.
Before handing the call over to Bruce I'd like to emphasize that we are quite pleased with the current state and health of the business. We have multiple core programs that have scaled up significantly compared to this time last year each.
Each are demonstrating operational excellence, which are reflected in the segment margins for the domestic segment.
Under the Maximus forward initiative, we are making investments in systems and technology to ensure the work we do for our customers years from now, it's either higher value or more efficient or a combination of both our business model is resilient in the face of potential negative outcomes, resulting from current budget talks within the U S Federal government.
David Muetren: Before handing the call over to Bruce, I'd like to emphasize that we are quite pleased with the current state and health of the business. We have multiple core programs that have scaled up significantly compared to this time last year, and each is demonstrating operational excellence, which is reflected in the segment margins for the domestic segment.
More specifically less than 3% of total company revenue may be impacted by a temporary shut down more.
More broadly from a budget standpoint, we are confident in the strategy of the company being squarely focused on the areas of priority for government spending all that Bruce expand on those thoughts so Bruce over to you.
Thanks, David and good morning, as David presented we are pleased with fiscal year 'twenty 'twenty four results, thus far and our increased earning guidance affirms our continued optimism about the business in.
David Muetren: Under the Maximus Forward initiative, we are making investments in systems and technology to ensure the work we do for our customers years from now is either higher value or more efficient or a combination of both. Our business model is resilient in the face of potential negative outcomes resulting from current budget talks within the U.S. federal government. More specifically, less than 3% of total company revenue may be impacted by a temporary shutdown.
In my closing remarks of our FY2023 Q4 call I address the ongoing global conditions that were creating an unprecedented environment highlighting volatility uncertainty complexity and ambiguity as common descriptors of the business and economic climate piece.
These conditions continue to exist and are in some ways amplified as we enter an election period.
I'd like to highlight how maximus remains well positioned to mitigate many of these risks to our business model and the underlying nature of the programs. We are entrusted to deliver for our government customers.
Bruce L. Caswell: More broadly, from a budget standpoint, we are confident in the strategy of the company being squarely focused on the areas of priority for government spending. I'll let Bruce expand on those thoughts, so Bruce, over to you. Thanks, David, and good morning.
Our view remains that these strengths will enable continued delivery of our mid single digit organic growth and margin expansion targets, both near and longer term.
For the next few minutes I'd like to further explain our view.
First I'll start with Max misses significant foundational base of business, which emerge is well protected from a period of higher rebate activity.
Bruce L. Caswell: As David presented, we are pleased with fiscal year 2024 results thus far, and our increased earning guidance affirms our continued optimism about the business. In my closing remarks of our FY23-Q4 call, I addressed the ongoing global conditions that are creating an unprecedented environment, highlighting volatility, uncertainty, complexity, and ambiguity as common descriptors of the business and economic climate. These conditions continue to exist and are, in some ways, amplified as we enter an election period.
Many established entitlement programs make up this base and history has shown they stand it to test the various presidential administrations.
This history combined with our track record of strong operations gives us confidence in the stability and future of these programs regardless of present budget and election dynamics are.
A great example is our CMS related work, where we help consumers gain access to critical health care, ensuring equitable access for those entitled to benefits has been a fundamental program function for Medicaid and Medicare since their enactment under title 19, if their social Security Act of 1965.
Bruce L. Caswell: I'd like to highlight how Maximus remains well positioned to mitigate many of these risks through our business model and the underlying nature of the programs we are entrusted to deliver for our government customers. Our view remains that these strengths will enable continued delivery of our mid-single-digit organic growth and margin expansion targets, both near and longer term. For the next few minutes, I'd like to further explain our view. First, I'll start with Maximus' significant foundational base of business, which is well-protected from a period of higher rebid activity. Many established entitlement programs make up this base, and history has shown they stand the test of various presidential administrations.
More recently, we've witnessed the resilience of the affordable care Act more than a decade from its enactment with enrolment, reaching a record $21 million for the 'twenty 'twenty four plan year.
While national enrollment levels are correlated to our business performance over the longer term they.
They are not the primary determinant, rather we operate a portfolio of contracts, where our scope of services payment models and activity specific volumes collectively drive business outcomes overtime.
Over time, we have differentiated our services to provide greater value to our customers in line with longer term program trends at.
At the state level. This has included Medicaid expansion tailored state plan options and the continued movement to manage long term care, which often includes a requirement for independent and conflict free assessments.
I'm proud of our operational teams for stepping up to the unprecedented restart of re determinations and note that David and his team have done an excellent job in quantifying the impact our results are showing the analysis continues to be right on the Mark our performance reflects our market leading position in the administration of complex benefit programs and as a trusted.
Bruce L. Caswell: This history, combined with our track record of strong operations, gives us confidence in the stability and future of these programs, regardless of present budget and election dynamics. A great example is our CMS-related work, where we help consumers gain access to critical health care. Ensuring equitable access for those entitled to benefits has been a fundamental program function for Medicaid and Medicare since their enactment under Title XIX of the Social Security Act of 1965.
Partner as these programs continue to evolve.
Another Great example of the durability of our business is the work we perform for the VA, where we help veterans and transitioning service members receive the benefits. They've earned these benefits are a core non discretionary spending obligation that receive broad bipartisan support.
As evidenced by the passing of the Pact Act in 2022 and the subsequent surge in applications that have driven inventory levels to new Heights. We are focused on supporting the V. A in their mission to provide every veteran to support to which they are entitled.
Bruce L. Caswell: More recently, we've witnessed the resilience of the Affordable Care Act, more than a decade from its enactment, with enrollment reaching a record 21 million for the 2024 plan year. While national enrollment levels are correlated to our business performance over the longer term, they are not the primary determinant.
Last week, the veterans benefits administration reaffirmed their increased hiring across 'twenty 'twenty four of staff, whose jobs include supporting the compensation and pension benefit decision process for years to come.
Moving beyond entitlement programs technology modernization is a prioritized area of the Maximus business enabled by our qualifications that had been significantly bolstered over recent years and in a market that's well supported by durable federal spending drivers.
Bruce L. Caswell: Rather, we operate a portfolio of contracts where our scope of services, payment models, and activity-specific volumes collectively drive business outcomes. Over time, we have differentiated our services to provide greater value to our customers in line with longer-term program trends. At the state level, this has included Medicaid expansion, tailored state plan options, and the continued movement to manage long-term care, which often includes a requirement for independent and conflict-free assessments.
As one of our three strategic pillars I T modernization represents a 40 billion dollar addressable market for Maximus at the federal level growing in the high single digits annually.
The monetization trend will continue as government systems age and the complexity of challenges facing government increases and in our view will transcend administrations.
Bruce L. Caswell: I'm proud of our operational teams for stepping up to the unprecedented restart of Redeterminations and note that David and his team have done an excellent job of quantifying the impact. Our results are showing that the analysis continues to be right on the mark. Our performance reflects our market-leading position in the administration of complex benefit programs and as a trusted partner as these programs continue to evolve. Another great example of the durability of our business is the work we perform for the Department of Veterans Affairs, where we help veterans and transitioning service members receive the benefits they've earned. These benefits are a core, non-discretionary spending obligation that receives broad bipartisan support.
Our work at the I R. S is a good example, and underscores our position as a top 20 federal I T contractor.
We feel well positioned to respond as the need to modernize and secure government systems continues to be quoted by government officials as a top priority.
Organic growth in our business is always driven by a combination of new work and volume growth on current programs.
We have a solid track record of working closely with government clients to take on more volumes or responsibilities within current programs.
This fiscal year is no different where organic growth is forecasted to meet our mid single digit target.
Further we've demonstrated time and again, our ability to improve margins as we scale.
The health of our core business underpinned by a successful year of Rebids and several programs scaling up ads to stability and certainty for the fiscal year in fiscal year 'twenty 'twenty. Three we were successful in securing more than $5 billion of total contract value and rebids.
Bruce L. Caswell: As evidenced by the passing of the PACT Act in 2022 and the subsequent surge in applications that have driven inventory levels to new heights, we are focused on supporting the VA in its mission to provide every veteran the support to which they are entitled. Last week, the Veterans Benefits Administration reaffirmed its increased hiring across 2024 of staff whose jobs include supporting the compensation and pension benefit decision process for years to come. Moving beyond entitlement programs, technology modernization is a prioritized area of the Maximus business, enabled by our qualifications that have been significantly bolstered over recent years, and in a market that's well supported by durable federal spending drivers. As one of our three strategic pillars, IT modernization represents a $40 billion addressable market for Maximus at the federal level, growing in the high single digits annually. The modernization trend will continue as government systems age and the complexity of challenges facing government increases, and, in our view, will transcend administration.
As a reminder, our September 30th backlog of $20.7 billion was over four times, our trailing revenue at that time.
This fiscal year.
We have very few scheduled rebids, providing strong line of sight to future revenues.
While on the topic of Rebids I'd like to touch on the recent announcement by CMS that it will recompete the contact center operations contract at some future point with the express purpose of including a labor harmony agreement requirement.
Maximus is currently in the second of nine available option periods on this contract that we have operated since 2018.
Since being awarded the current contract in 2022 we have outperformed customer service metrics and achieved record customer satisfaction levels, while respecting occasional labor organizing activities, which have not interrupted operations in.
In the company's view the introduction of such a requirement is unprecedented in our services contract of this nature, particularly in light of its highly successful performance and demonstrated continuity of operations.
We look forward to providing continued best in class customer service to our CMS customer and the American people, including tens of millions of seniors.
Bruce L. Caswell: Our work at the IRS is a good example and underscores our position as a Top 20 Federal IT Contractor. We feel well positioned to respond as the need to modernize and secure government systems continues to be cited by government officials as a top priority. Organic growth in our business is always driven by a combination of new work and volume growth on current programs. We have a solid track record of working closely with government clients to take on more volumes or responsibilities within current programs. This fiscal year is no different, where organic growth is forecasted to meet our mid-single-digit target.
We are proud of our employees across seven states who've worked in partnership with CMS to provide exemplary service each day.
And whose job satisfaction has been evidenced through our annual independently conducted employee engagement surveys.
No timeline or further details have been disclosed by the government, which in due course will inform our further actions as is the case with all procurements and.
And tell the Recompete process is complete which typically takes a year or more for a contract of this size and complexity. We expect to continue to work uninterrupted supporting our customer and nearly 75 million Americans.
We continue to stay committed in our efforts to optimize our organization for the future and think critically about our delivery model through.
Through our Maximus forward initiative, which we introduced last year, we continued to see success in identifying opportunities to innovate and are rethinking end to end delivery, including our supply chain to drive efficiencies and gain greater access to global talent.
Bruce L. Caswell: In addition, we've demonstrated time and again our ability to improve margins as we scale. The health of our core business, underpinned by a successful year of rebids and several programs scaling up, adds to stability and certainty for the fiscal year. In fiscal year 2023, we were successful in securing more than $5 billion of total contract value in rebids. As a reminder, our September 30th backlog of $20.7 billion was over four times our trailing revenue at that time. This fiscal year, we have very few scheduled rebids, providing a strong line of sight to future revenue.
One corporate wide objective of Maximus forward is increasing employee retention, which enhances quality on programs reduces costly turnover and creates greater career opportunities for our staff.
Our teams have developed several initiatives to improve retention over the next 18 to 24 months and ensure we have the right talent to support our growth.
I am, particularly proud of one initiative that has already proven to reduce the costs associated with turnover last quarter within a matter of weeks. Our teams successfully redeployed hundreds of employees coming off a handful of projects onto new programs.
Bruce L. Caswell: While on the topic of rebids, I'd like to touch on the recent announcement by CMS that it will recompete the contact center operations contract at some future point with the express purpose of including a labor harmony agreement requirement. Maximus is currently in the second of nine available option periods on this contract that we have operated since 2018. Since being awarded the current contract in 2022, we have outperformed customer service metrics and achieved record customer satisfaction levels while respecting occasional labor organizing activities which have not interrupted operations. In the company's view, the introduction of such a requirement is unprecedented in a services contract of this nature, particularly in light of its highly successful performance and demonstrated continuity of operation. We look forward to providing continued best-in-class customer service to our CMS customers and the American people, including tens of millions of seniors.
These transition periods are never perfectly timed to end one day and begin the next with better processes and data we can bridge our valued employees to their next opportunity, while enabling training and upskilling in the interim.
[noise] courses available to employees range from soft skills, such as leadership development technical programs, including project management and agile certifications. It's.
It's exciting to see this employee led initiative come alive.
The strength of our balance sheet is the final point I'll make about the stability and certainty of our business our.
Our debt ratio is now 2.1 times, giving us capacity to make strategic investments to accelerate growth as we identify them.
Ahead of uncertain economic conditions, having robust cash flows, which we increased the guidance for this year healthy assets and an appropriate amount of debt are further evidence of the strength of our balance sheet.
Looking forward, we recently announced the hiring of our new Chief Digital and information officer. This position marks our evolution from more traditional CIO role and demonstrates our ongoing commitment to technology modernization Derek.
Derek Pledger, who stepped into the role on January 29th will serve as a catalyst for leveraging digital tools and data to drive business growth, while maintaining a resilient and dependable I T Foundation.
Bruce L. Caswell: We are proud of our employees across seven states who have worked in partnership with CMS to provide exemplary service each day, and whose job satisfaction has been evidenced through our annual independently conducted employee engagement survey. No timeline or further details have been disclosed by the government, which in due course will inform our further actions, as is the case with all procurements. Until the recompete process is complete, which typically takes a year or more for a contract of this size and complexity, we expect to continue to work uninterrupted, supporting our customer and nearly 75 million Americans.
Under his leadership, our I T and operations teams will deepen collaboration with our government clients to harness data in a manner that optimizes processes and improve the citizen experience a priority for all government agencies.
On the topic of evolving our approach to technology, let me share some advancements on our journey with artificial intelligence.
Following our early establishment of solid governance processes, we're starting to make progress on specific use cases designed to support our employees at one of our larger state customer contact centers, we're piloting to AI capabilities to enable our customer service representatives to train new hires faster and help them work smarter.
Using AI. The program is developing training simulations that will allow employees to learn in a safe space using real life. Examples stimulations are a proven tool to improve retention and create a positive environment that encourages learning.
Bruce L. Caswell: We continue to stay committed in our efforts to optimize our organization for the future and think critically about our delivery model. Through our Maximus Forward initiative, which we introduced last year, we continue to see success in identifying opportunities to innovate in our rethinking end-to-end delivery, including our supply chain, to drive efficiencies and gain greater access to global talent. One corporate-wide objective of Maximus Forward is increasing employer retention, which enhances quality of programs, reduces costly turnover, and creates greater career opportunities for our staff. Our teams have developed several initiatives to improve retention over the next 18 to 24 months and ensure we have the right talent to support our growth. I am particularly proud of one initiative that has already proven to reduce the costs associated with turnover. Last quarter, within a matter of weeks, our teams successfully redeployed hundreds of employees coming off of a handful of projects onto new programs.
We anticipate that as we build the simulations for various aspects of the program time to train new employees will shrink by several days age.
<unk> agent assist is a second example of our team's work to leverage AI in an employee centric manner.
<unk> agent assist listened to calls in real time and offers agents solutions to questions. As they are raised by the consumer reducing and possibly eliminating the need to search for information while carrying out the call.
[noise] agent assist will reduce wait times improve first call resolution by ensuring the correct information is provided in real time and enhance the citizen engagement experience with our team members.
Agent training and agent assessed our two capabilities meant to improve quality at our contact centers and enhance the work performed by our team members.
Citizen experience as the first priority for our programs and we view AI as a helpful tool to exceed expectations and further empower our team members in delivering exceptional service.
Now I'll turn to pipeline and awards.
Bruce L. Caswell: These transition periods are never perfectly timed to end one day and begin the next; with better processes and data, we can bridge our valued employees to their next opportunity while enabling training and upskilling in the process. Courses available to employees range from soft skills such as leadership development to technical programs, including project management and Agile certification. It's exciting to see this employee-led initiative come alive. The strength of our balance sheet is the final point I'll make about the stability and certainty of our business. Our debt ratio is now 2.1 times, giving us the capacity to make strategic investments to accelerate growth as we identify them.
For the first quarter of fiscal 'twenty 'twenty four signed awards totaled $422 million of total contract value. Further at December 31st there were $802 million worth of contracts that had been awarded but not yet signed.
These awards translate into a book to Bill of approximately 1.2 times for the trailing 12 month period.
Our pipeline at December 31 was $37.7 billion compared to 37.1 billion reported in the fourth quarter of fiscal 2023.
The December 31st pipeline is comprised of approximately $933 million in proposals pending one point or $1 billion in proposals and preparation and $35.7 billion and opportunities tracking.
Of our total pipeline of sales opportunities approximately 77% represents new work. Additionally, 57% of the $37.7 billion total pipeline is attributable to our U S. Federal services segment.
Bruce L. Caswell: Ahead of uncertain economic conditions, having robust cash flows, for which we increased the guidance for this year, healthy assets, and an appropriate amount of debt are further evidence of the strength of our balance sheet. Looking ahead, we recently announced the hiring of our new Chief Digital and Information Officer. This position marks our evolution from a more traditional CIO role and demonstrates our ongoing commitment to technology modernization. Derek Pledger, who stepped into the role on January 29th, will serve as a catalyst for leveraging digital tools and data to drive business growth while maintaining a resilient and dependable IT foundation. Under his leadership, our IT and operations teams will deepen collaboration with our government clients to harness data in a manner that optimizes processes and improves the citizen experience, a priority for all government agencies.
In closing.
We are pleased with the performance of the business during this past quarter and grateful for the tens of thousands of Maximus employees, who have made this possible.
By the metrics, we are progressing toward our established targets of 10% to 14% total company adjusted operating income margin and mid single digit organic growth at the segment level, our FY 'twenty four forecasts for the U S services and federal services segments place us comfortably within the 11% to 14% and 10% to 12% adjusted operating income.
Some targets we established.
With strong tailwind of well performing core business, a healthy balance sheet and long term programs with proven resilience. We are well positioned for continued execution on our three to five year strategy.
With our Maximus forward initiatives, well underway transformational leadership, driving greater technology innovation and employee driven initiatives to grow and retain talent. We are carrying a strong momentum into future periods and with that we'll open the line for Q&A operator.
Bruce L. Caswell: On the topic of evolving our approach to technology, let me share some advancements on our journey with artificial intelligence. Following our early establishment of solid governance processes, we're starting to make progress on specific use cases designed to support our employees at one of our larger state customer contact centers. We're piloting two AI capabilities to enable our customer service representatives to train new hires faster and help them work smarter. Using AI, the program is developing training simulations that will allow employees to learn in a safe space using real-life examples. Simulations are a proven tool to improve retention and create a positive environment that encourages learning. We anticipate that, as we build simulations for various aspects of the program, the time to train new employees will shrink by several days.
Thank you we will now be conducting a question and answer session.
Please limit yourself to one question and one follow up question. If you wish wish to ask additional questions you may reenter the queue.
If you would like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, while we poll for questions.
Our first question today is from Charlie Strausser of C. J S. Please proceed with your question.
Hi, good morning.
Where we are.
It's early as we are in your fiscal year can you talk a little bit more about the confidence level is behind.
Hey, guys. Thanks.
Good morning, Charlie It's Bruce and David can pick this one up.
Yeah. Thanks, Thanks, Charlie.
So on the guidance all acknowledged that a portion of the race isn't the strong Q1 results and that strong business momentum does give us confidence for the higher earnings throughout the rest of the year.
Bruce L. Caswell: Agent Assist is a second example of our team's work to leverage AI in an employee-centric manner. Agent Assist listens to calls in real time and offers agents solutions to questions as they are raised by the consumer, reducing and possibly eliminating the need for agents to search for information while carrying out the call. Agent Assist will reduce wait times, improve first call resolution by ensuring the correct information is provided in real time, and enhance the citizen engagement experience with our team members. Agent Training and Agent Assist are two capabilities meant to improve quality at our contact centers and enhance the work performed by our team members.
As I think about what.
Could transpire over the remaining quarters as far as risks risks and opportunities given the typical length of our sale. Thank all bearing in mind that were already four months into the fiscal year realistically Theres more limited opportunity of new work driving meaningful incremental change to the air to the bright side of that is that we have high revenue visibility.
Or in other words, Theres limited upside, but also limited downside as we have just eight months remaining.
So the opportunity there is for the remainder of the year are largely the same factors that we highlighted as driving Q1 result, and that would be volume cost management and operational efficiency.
So just a few words on the volumes since.
53% of our revenue now in the quarter, which will be in our 10-Q is performance based in nature, that's where the volumes can really impact.
Bruce L. Caswell: Citizen experience is the first priority for our programs, and we view AI as a helpful tool to exceed expectations and further empower our team members in delivering exceptional service. Now I'll turn to the pipeline and a word about the word. For the first quarter of fiscal 2024, signed awards totaled $422 million in total contract value.
Top and bottom line in fact, a sudden change in volumes really drives the disproportionate impact to the bottom line in either direction.
We have a disciplined approach to forecasting volumes there is inherently some risk and opportunity that volumes can drive up or down.
But the good news is we're seeing high demand in many parts of the portfolio, we called out a D. A M D volumes Medicaid redetermination, but strong volume.
Bruce L. Caswell: Furthermore, at December 31st, there were $802 million worth of contracts that had been awarded but not yet signed. These awards translate into a book-to-bill of approximately 1.2 times for the trailing 12-month period. Our pipeline at December 31st was $37.7 billion, compared to $37.1 billion reported in the fourth quarter of fiscal 2020. The December 31st pipeline is comprised of approximately $933 million in proposals pending, $1.01 billion in proposals in preparation, and $35.7 billion in opportunities tracked. Of our total pipeline of sales opportunities, approximately 77% represents new work. Additionally, 57% of the $37.7 billion total pipeline is attributable to our U.S. Federal Services segment.
Drive.
Yes.
Great. Thank you and then just lastly on the C. C. O contract can you talk a little bit more about the financial.
Characters characterize it.
Characteristics that contract.
Sure Yeah, we don't typically disclose contracts specific values for this contract we have announced in the past its total value of $6 6 billion over the base and nine option years, which we're in now so that means today. It runs in the 600 to 700 million range of annual revenue, which is less than 15% of our.
Total company revenue.
Also worth noting it is a cost plus contract that that means naturally it's lower than average for both growth and operating income margins compared to the rest of our portfolio.
Yeah, Charlie I thought I'd take a moment and address I'm sure a topic that's on the minds.
Shareholders and others net potential timing of the estimated timing on the on the rebid and I just want to reiterate what I said in my prepared remarks that the procurement of this size and complexity can typically take up to a year or more to complete.
Bruce L. Caswell: In closing, we are pleased with the performance of the business during this past quarter and grateful for the tens of thousands of Maximus employees who have made this possible. By the metrics, we are progressing toward our established targets of 10 to 14 percent total company-adjusted operating income margin and mid-single-digit organic growth. At the segment level, our FY24 forecasts for the U.S. services and federal services segments place us comfortably within the 11-14% and 10-12% adjusted operating income targets we established.
And it's not uncommon for the process to take up to three years. So yeah. We the information we have is clearly what's been posted publicly and they will continue to follow it and I just wanted to provide a little further context to that.
Thanks, Charlie.
Great. Thanks, Chris next question.
Yes.
Yes.
Thank you operator next question. Our next question is from Bert Sabine of Stifel. Please proceed with your question.
Yeah, Hey, good morning.
Good morning Bert.
Morning.
Hey, David and Chris.
Maybe if we could dig a little further into the VA side of things.
Wondering if you can provide some more color on where things stand in that business. It seems like it was a material sales growth driver in the first quarter, but margins in the U S. Federal segment were a little bit lower than what I thought did you receive any disincentive fees in the quarter or was there anything sort of to call out.
Operator: With strong tailwinds, a well-performing core business, a healthy balance sheet, and long-term programs with proven resilience, we are well-positioned for continued execution on our three-to-five-year strategy. With our Maximus Forward initiatives well underway, transformational leadership driving greater technological innovation, and employee-driven initiatives to grow and retain talent, we are carrying strong momentum into future periods. And with that, we'll open the line for Q&A, operator. Thank you. We will now be conducting a question and answer session. Please limit yourself to one question and one follow-up question.
And then as you go through the rest of FY 'twenty for what what's your view on the MD side.
Yeah.
That line of business is performing very well as we look at the margin for Q1.
Really not related so much to that contract there is a component of seasonality in our federal segment. During the open enrollment period, which largely covers the first quarter, where we see more revenue on cost plus work that is tied to open enrollment.
So that that explains.
Some of the revenue on a sequential basis as well as some of the margin profile, we're saying I'll point out.
Operator: If you wish to ask additional questions, you may re-enter the queue. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.
Margin in federal was essentially in line with our expectation, we said on the last call, 11%, 12% for the year, but our profile of increasing margin over the air.
So we really just reiterated that expectation on this call, which we remain confident so if it's 11% to 12% for the year recognizing it's below that in Q1, we actually see it rising above the high end of that 12% in the back half of the year.
Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. Please wait while we poll for questions. Our first question today is from Charlie Strauzer of CJS. Please proceed with your question. Hi, good morning. Given where we are, you know, how early in your fiscal year, can you talk a little bit more about the confidence levels behind the updated guidance? Good morning, Charlie.
But the VA program volumes are certainly a part of that story.
Okay, Yeah, I mean, I guess I'm, just trying to clarify because.
It was almost 10% organic.
Quite healthy for that segment and you guys talked in the prepared remarks about scale and the operating leverage you get so it.
Was there any I guess what changes as we go into <unk> on that front, because sales already seem to be pretty robust.
Bruce L. Caswell: It's Bruce, and David's going to pick this one up and address it. Yeah, thanks. Thanks, Charlie. So on the guidance, I'll acknowledge that a portion of the raise is due to the strong Q1 results, and that strong business momentum does give us confidence for higher earnings throughout the rest of the year. As I think about what could transpire over the remaining quarters as far as risks and opportunities are concerned, given the typical length of our sales cycle, bearing in mind that we're already four months into the fiscal year, realistically, there's a more limited opportunity for new work driving meaningful incremental change this year. So the bright side of that is that we have high revenue visibility, or in other words, there's limited upside but also limited downside as we have just eight So the opportunities and risks for the remainder of the year are largely the same factors that we highlighted as driving Q1 results. And that would be volumes, cost management, and operational efficiency.
Yeah.
The mix of work by cost type will improve.
As it relates to the comment I made with the higher cost plus portion in the first quarter.
As well, we just continue to grow our operational capacity.
Inefficiency as a result, as we continue to grow into higher volumes.
I might add.
To the importance of our Maxim as forward program across the company and as you can imagine we look at all our major programs and look at ways that we can do our work differently and more efficiently and how we can refresh and improved technology, that's going to improve the consumer experience, including in this case the veterans experience and so really it's a combination as David has said.
There are factors that give us confidence.
And the outlook for the remainder of the year purchase constantly focused on driving greater efficiencies and Bob.
Top quality service that we can deliver in high volume in these complex programs.
Okay got it that helps.
On the Redetermination side.
It seemed like a pretty good quarter for activity there and from your comments it sounds like thats going to sort of moderate as we think through the rest of the year.
David Muetren: So just a few words on the volumes since. Fifty-three percent of our revenue now in the quarter, which will be in our 10-Q, is performance-based in nature. That's where the volumes can really impact both the top and bottom lines. In fact, a sudden change in volumes really drives a disproportionate impact on the bottom line in either direction.
Bruce you talked before I think about the plan participants being more elevated.
More state works on the Redetermination side, so as we think beyond what we're seeing today and maybe future periods is there a case for that run rate to be above the 60 per year that you've previously talked about.
David Muetren: We have a disciplined approach to forecasting volumes. There's inherently some risk and opportunity that the volumes can go up or down. But the good news is we're seeing high demand in many parts of the portfolio, which we called out the VAMDE volumes, Medicaid redetermination, but strong volumes that are really driving. Great, thank you.
You know I would just say there continues to be a focus from the administration rightly on administrative just enrollments are procedural this enrollment and I. One one thing I would say that's different this quarter from prior quarters as a number of states that are making extra efforts to reach out to populations that may.
Not have been responsive initially to numerous outreach attempts to improve awareness and to get them to engage and ensure that their redetermination is obviously based on new information being submitted are there.
David Muetren: And then just lastly, on the CCO contract, can you talk a little bit more about the financial characteristics of that contract? Sure. Yeah, we don't typically disclose contract-specific values, but for this contract, we have announced in the past its total value of $6.6 billion over the base and nine option years, which we're in now.
State and so forth. So what we've seen is as a consequence, a number of our state customers, having us focus more and more on ensuring that those populations were really getting into the details of certain cohorts in certain almost down to zip codes right getting to the populations to ensure that.
David Muetren: So that means today it runs in the $600 to $700 million range of annual revenue, which is less than 15% of our total company revenue. And also worth noting, it is a cost-plus contract, so that means, naturally, it's lower than average for both gross and operating income margin compared to the rest of our portfolio. Anything you'd add, Bruce?
Any procedural desk enrollments are.
Are appropriate and obviously.
Individuals.
Great opportunity to submit their documentation so if anything that while the redetermination, we don't bet the wave cresting in the first quarter and I think that's true.
Bruce L. Caswell: Yeah. You know, Charlie, I thought I'd take a moment and address, I'm sure, a topic that's on the mind of shareholders and others, and that's the potential timing or the estimated timing of the rebid. And I just want to reiterate what I said in my prepared remarks, that a procurement of this size and complexity can typically take up to a year or more to complete, and it's not uncommon for the process to take up to three years.
We also feel like.
That we've got that we forecasted in that support our revised outlook full year reflect that ongoing work and in some cases, even expanded work in certain areas to ensure we're getting to that full population.
But the dollar figure on it as much as I would say that dynamic in terms of redetermination than what I would call their gradual reduction.
It's baked into the guidance, we provided but I'll turn to David for any further commentary yeah. I think I think you know I think as we've.
Bruce L. Caswell: So, you know, the information we have is clearly what's been posted publicly, and we'll continue to follow it, but I just wanted to provide a little further context. Thanks, Charlie. Operator, we'll go to the next question. Thank you. Operator, next question.
As far as quantifying you know Ive cautioned many times that we can calculate the precise number of the contribution but it's clear that we're in the range. If you just look at the year over year OE growth in that segment. The U S services segment. So you know it was very deliberate in my prepared remarks to give some extra color on the U S services margins over the remaining quarters.
Operator: Our next question is from Bert Sabine of Stiefel. Please proceed with your question. Hey, good morning. Morning, Bert. Good morning.
Operator: Thank you, Chris. Maybe we could dig a little further into the VA side of things. I'm just wondering if you could provide some more color on where things stand in that business. It seems like it was a material sales growth driver in the first quarter, but margins in the U.S. federal segment were a little bit lower than I thought. Did you receive any disincentive fees in the quarter? Was there anything sort of like the call out?
A little more quarterly detail than we're used to but knowing that this is a dynamic that we wanted to be as transparent about oh I'll reiterate that we expect it to be in that 11% to 12% range for the next three quarters.
I think what's important to note there that we don't see any meaningful ramp down as we crossover the anniversary point of Windows Redetermination is resumed.
Got it Okay. Just one last question for me.
David Muetren: And then, as you go through the rest of FY24, what's your view on that? Yeah. That line of business is performing very well. As we look at the margin for Q1, it is really not related so much to that contract. There is a component of seasonality in our federal segment during the open enrollment period, which largely covers the first quarter, where we see more revenue on cost plus work that is tied to open enrollment. So that explains some of the revenue on a sequential basis, as well as some of the margin profile we're seeing. I'll point out that the margin in federal was essentially in line with our expectation.
It seems like you know.
Obviously, a lot of focus right now in the VA and terminations, but those things will stabilize over time and it seems like the next leg of growth it could be the modernization opportunity that Bruce you've talked about several times and it's a lot of that to the U S. Federal side, It's an area, where you maybe have less penetration and you're thinking about growing there organically and.
Inorganically you just give us a walk through what you think the organic opportunity is perhaps the ddos contracted with us and with other agencies.
Or do you think you need to maybe fill some holes inorganically over the next year to keep growing there.
David Muetren: We said on the last call that 11 to 12% for the year, but a profile of increasing margin over the year. So we really just reiterated that expectation on this call, which we remain confident in. So if it's 11 to 12% for the year, recognizing it's below that in Q1, we actually see it rising above the high end of that 12% in the back half of the year. But VA program volumes are certainly a part of that story. Okay, yeah, I mean, I guess I'm just trying to clarify because, uh... You know, it was almost 10% organic.
Sure.
Your analysis is spot on and I will say in the sense that we do see a near term opportunities being related to modernization initiatives that are underway presently in our programs and where there is a tight alignment between the.
Between the programmatic side of the business and the procurement side of the business ethos is a great example, I'll note that actually just yesterday. The Treasury Department released a really interesting we report that says that.
Modernization efforts within the IRS are likely over the course of 10 years to bring in an additional $561 billion of revenue to the agency. So the ROI on the.
David Muetren: Question about scale and operating leverage. What changes as we go into 2Q, 3Q, 4Q? Yeah, so I guess the mix of work by cost type will improve as it relates to the comment I made with the higher cost plus portion in the first quarter. As well, we just continue to grow our operational capacity and efficiency as a result as we continue to grow into higher volumes. And I might add, Bert, that I spoke to the importance of our Maximus Forward program across the company. And, as you can imagine, we look at all our major programs and look at ways that we can do our work differently and more efficiently, and how we can refresh and improve technology that's going to improve the consumer experience, including, in this case, the veteran experience. And so, really, it's a combination, as David has said, of a number of factors that give us confidence in the outlook for the remainder of the year because we're just constantly focused on driving greater efficiencies while ensuring top quality service that we can deliver at high volume in these complex programs. Okay. That helps.
Monetization of investment spend is pretty compelling and we're pleased to now have seen a number of task orders initially working their way through the pipeline and more to come. So it's great to see that program up and operating I think as we look across this year and being an election year and knowing that there could be a change in administration.
In the next year. The key is for agencies that have really kind of thought through and planned and timed the procurement processes for their it modernization initiatives in other words, they need is compelling and it happens in a somewhat cyclical fashion I've been around the industry long enough to recall the last time, we went through IRS modernization. So.
Kind of every couple of decades, the systems get aged inadequate as technology has advanced and we have to go through a modernization wave does that present the greatest opportunity to the contracting community are those that have been if you will kind of baked in terms of the procurement strategy at the table set to be executed between now and the next year. So in terms of.
Areas of opportunity, where we feel like we see these waves in a number of civilian agencies and we feel we're well positioned but to pivot to the second half of your question.
Bruce L. Caswell: On the redetermination side, seemed like, you know, a pretty good quarter for activity there. And from your comments, sounds like that's gonna, you know, sort of moderate as we think through the rest of the year. Bruce, you talked before, I think about counter-offense being more elevated and winning more state work on the redetermination side. So as we think beyond today and to maybe future periods. Is there a case for that run rate to be above the $0.60 per year that you previously talked about? You know, I would just say there continues to be a focus from the administration rightly on administrative disenrollments or procedural disenrollments. And one thing I would say that's different this quarter from prior quarters is a number of states that are making extra efforts to reach out to populations that may not have been responsive initially to numerous outreach attempts So, what we've seen is, as a consequence, a number of our state customers have us focus more and more on ensuring that those populations are really getting into the details of certain cohorts and certain areas, almost down to zip codes. Right?
I will say and I'll say I'll quote my former boss Richemont, Tony who used to say, we can never keep our technology saw sharp enough and he is right. There are areas, where I think we could continue to build out our capabilities somewhat organically, but also inorganically one that.
Comes to mind I think for everyone. In this community of cyber security and I think increasingly these days the capability to help agencies navigate.
I wanted to say AI, but im going to restrain myself, because I think the key to effective AI implementation is data and so helping agencies clean up and make use of their data and get it into a form where it can be valuable and inform their AI strategy with proper governance is another frontier I think that all of that the vendors in our commuter.
Looking at addressing one way or another so hopefully that gives you a bit of insight.
As I said in my prepared remarks continue to feel quite optimistic about it modernization because our federal customers have said very clearly that it remains a priority for them.
But it's just I'll just add.
Please go ahead.
He set about Ddos.
You said task orders are starting have you started work on that or are you just starting to see the potential activity.
There are task orders that are out being bid by the various vendors on the contract presently.
Bruce L. Caswell: Of getting to the populations to ensure that any procedural disenrollments are appropriate and obviously give individuals an appropriate opportunity to submit their documentation. So, if anything, while the redetermination process, we talked about the wave cresting in the first quarter, and I think that's true. I think we also feel like the efforts that we've got that we forecast and that support our revised outlook for the full year reflect that ongoing work. And in some cases, even expanded work in certain areas to ensure we're getting to that full population. So, I wouldn't put a dollar figure on it as much as I would say that dynamic in terms of redetermination. Then, what I would call their gradual reduction is baked into the guidance we provide, but I'll turn to David for any further commentary. Yeah, I think I, you know, that I think as far as quantifying is concerned, I caution many times that we can't calculate a precise number of the contribution.
Got it thank you sorry, Dave.
David wanted to add.
I'll just I agree that this is definitely an area of interest on the M&A front and thought I would just chime in as well I said on the last call.
The free cash flow should enable us to delever down to about one five times by the end of the year absent M&A. So just pointing out that we do have capacity on the appetite in the near term.
Thank you Beth I appreciate all the color.
Sure. Thanks, Brett.
Back to you.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Okay.
Yes.
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David Muetren: But it's clear that we're in the range. If you just look at the year over year growth in that segment, the US services segment. So, you know, it's very deliberate in my prepared remarks to give some extra color on the US services margin over the remaining quarters. Probably a little more quarterly detail than we're used to, but knowing that this is the dynamic that we want to be as transparent about. So, I'll reiterate that we expect it to be in that 11 to 12% range for the next 3 quarters.
Mhm.
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Hum.
Hmm.
David Muetren: And I think what's important to note there is that we don't see any meaningful ramp-down as we cross over the anniversary point of when the predetermination was made. Okay, just one last question for me. It seems like, you know, there's obviously a lot of focus right now on the VA and on redeterminations, but those things will stabilize over time. And it seems like the next leg of growth, you know, could be the modernization opportunity that Bruce, you've talked about several times. And there's a lot of that for the US federal side.
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Bruce L. Caswell: It's an area where, and with other agencies, and where do you think you need to maybe fill some holes inorganically over the next year to keep growing? Sure. Your analysis is spot on, I will say, in the sense that we do see the near-term opportunities being related to modernization initiatives that are underway presently and are programmed and where there's a tight alignment between the programmatic side of the business and the procurement side of the business. EDOS is a great example.
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Bruce L. Caswell: I'll note that just yesterday, the Treasury Department released a really interesting report that says that the IT modernization efforts within the IRS are likely, over the course of 10 years, to bring in an additional $561 billion of revenue to the agency. So the ROI on the IT modernization investment spend is pretty compelling, and we're pleased to now have a number of task orders initially working their way through the EDOS pipeline with more to come. So it's great to see that program up and running. I think as we look across this year and being in an election year and knowing that there could be a change in administration in the next year, the key is for agencies that have really thought through and planned and timed the procurement processes for their IT modernization initiatives. In other words, the need is compelling, and it happens in a somewhat cyclical fashion. I've been in the industry long enough to recall the last time we went through IRS modernization. So it's kind of every couple of decades; the systems get aged and antiquated, technology is advanced, and we have to go through a modernization wave.
Okay.
Mhm.
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Bruce L. Caswell: Those that will present the greatest opportunity to the contracting community are those that have been, if you will, kind of baked in terms of the procurement strategy and the table set to be executed on between now and the next year. So in terms of areas of opportunity, we feel like, We see these waves in a number of civilian agencies, and we feel we're well-positioned, but to pivot to the second half of your question, I will say, and I'll quote my former boss, Rich Montoni, who used to say, we can never keep our technology saw sharp enough, and he's right. There are areas where I think we could continue to build out our capabilities somewhat organically, but also inorganically. One that comes to mind, I think, for everyone in this community is cybersecurity, and I think increasingly these days, the capability to help agencies navigate, I want to say AI, but I'm going to restrain myself, because I think the key to effective AI implementation is data, and so helping agencies clean up and make use of their data and get it into a form where it can be valuable and inform their AI strategy with proper governance is another frontier I think that all of the vendors in our community are looking at addressing one way or another.
Yeah.
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Bruce L. Caswell: So hopefully, that gives you a bit of insight, but we, as I said in my prepared remarks, continue to feel quite optimistic about IT modernization because our federal customers have said very clearly that it remains a priority. Bruce, just go there, please. I've just got to ask what you said about EDOT. Um... The task orders are starting. Have you started work on that, or are you just starting to see it? There are task orders that are out being bid by the various vendors on the contract.
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Bruce L. Caswell: Got it, thank you. I agree that this is definitely an area of interest on the M&A front and thought I would just chime in as well. I said on the last call that free cash flow should enable us to delever down to about 1.5 times by the end of the year, absent M&A, so just pointing out that we do have capacity and the appetite in the near term. Thank you both. I appreciate all the color. Thanks, Bert. Operator, back to you. This concludes today's teleconference. You may disconnect your lines at this time.
Okay.
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Operator: Thank you for your participation, and David Sparacino. Thanks for watching. I'll see you next time.
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Operator: TheBusinessProfessor.com, The Ultimate Parody Site!!! in Subs by www.zeoranger.co.uk, transcript Emily Beynon... BF-WATCH TV 2021, The Ultimate Parody Site! Bye!
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Okay.
Yeah.
Yeah.