Ladies and gentlemen, thank you for standing by and welcome to the Q2 Fiscal Year ’20 MAXIMUS Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Lisa Miles, Senior Vice President of Investor Relations. Thank you. Please go ahead.

Good morning and thank you for joining us today. With me is Bruce Caswell, President and Chief Executive Officer; and Rick Nadeau, Chief Financial Officer. I would like to highlight that a presentation is available on the Investor Relations page of MAXIMUS.com if you would like to follow along with today’s prepared remarks. I would 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 as a result of the risks we face, including those discussed in Exhibit 99.1 of our SEC filings. We encourage you to review the information contained in our earnings release today and our most recent Forms 10-Q and 10-K filed with the SEC. The company does not assume any obligation to revise or update these forward-looking statements to reflect subsequent events or circumstances, except as required by law. Today’s presentation may contain non-GAAP financial information. Management uses this information in its internal analysis of results and we believe this information may be informative to investors, engaging the quality of our financial performance, identifying trends in our results, and providing meaningful period-to-period comparisons. For a reconciliation of the non-GAAP measures presented in this document, please see the company’s most recent quarterly earnings press release. And with that, I’ll hand the call over to Rick.

Thank you, Lisa. First, let me say that since the COVID-19 pandemic, Bruce and I have never been prouder to lead an organization with such heart, dedication, ingenuity and collaboration at all levels. Underscoring the critical nature of our work, many of our core program operations in the United States and abroad have been deemed essential to ensure that vital government programs continue to operate and citizens continue to receive critical assistance at a time when the need for healthcare and safety-net programs is rising. The entire MAXIMUS team has met this challenge and worked tirelessly to ensure that we continue to support citizens during this unprecedented health pandemic. Our employees are accomplishing extraordinary things during the COVID-19 pandemic. Bruce will discuss in greater detail, but I would like to highlight some important accomplishments. First and foremost, we implemented robust paid leave options to ensure the safety and wellbeing of those employees who experienced COVID-19 related absences. We mandated social distancing across all operations, significantly enhanced our sanitation measures, and most importantly, we continue to transition more employees to work from home. Outside the United States, we have partnered with government in the United Kingdom to redeploy some of our healthcare professionals directly into the National Health Service as well as case management and administrative staff into the Department for Work and Pensions to provide vital front-line support. Our priority has been the health and safety of our employees and ensuring that we can continue to support our government clients in whatever model that takes, as demand for government services surges. No one can predict with certainty the scale or length of disruption from the COVID-19 pandemic or how deep and severe the economic impacts will be. We completed our normal bottom’s up quarterly review in April and are reinstating…

Thank you, Rick and good morning, everyone. Like Rick, I could not be more proud of our employees’ efforts during these unprecedented times. COVID-19 is a global pandemic that impacts all of us. We are working around the clock to ensure we protect our employees, while still serving government and the vulnerable populations who rely on the Health & Human Services programs we operate; a demand, which is only increasing under the impacts of this pandemic. In mid-March, we rapidly developed a response to fast-moving COVID-19 challenges and implemented new policies emphasizing paid sick leave, social distancing and significantly enhanced cleaning regimens to keep our employees safe and healthy. The slide in my presentation illustrates many of the protections and resources we have provided. And I’ll touch on some of the most salient actions taken in my remarks. If you hover over each box, additional details will be highlighted for each initiative. As part of our efforts, we are following the more restrictive recommendations outlined in the Federal Families First Coronavirus Response Act and in some cases, we are exceeding the Act. While the Act does not apply to MAXIMUS, because we have more than 500 employees, we felt it provided a good benchmark for supporting and safeguarding our employees. Our income continuity plans are fully funded by MAXIMUS and cover a variety of scenarios, including quarantine, childcare, government mandated restrictions, office closure and employees who are in high risk categories. Under these leave options, an employee’s health insurance is also protected and we are not requiring them to take their accrued paid time off or PTO in order to access these leave options. We also realize that employees stress and anxiety is heightened during this time. Balancing the strains of normal life during the crisis has been difficult for…

Thank you. [Operator Instructions] Our first question is from Charles Strauzer with CJS Securities. Your line is open.

Good morning, guys. This is Brendan on for Charlie. I want to ask you had a lot of great color on you know what’s going on you know with COVID-19 not only affecting operations, but also opportunities as well. I was wondering is there any way you can quantify the benefit from it in this quarter you just reported, and then any way you can talk about how it affects your guidance that you reinstated and what – could you quantify that?

Hey, Brendan it’s Bruce. Good morning and thanks for the question. I’ll begin and then I’ll turn it over to Rick to answer the second part of your question. I can share with you that as of two days ago, we’ve added approximately $140 million of signed and unsigned awards for COVID-19-related work, across all three of our business segments. And we gave a little bit of color on that in the call, talking about some of the work, for example, that we picked up in Canada and of course, in the Federal segment and in the US Health & Human Services segment. This particularly relates to the contact tracing work and unemployment insurance work. So that’s all subsequent to the March 31st reporting period. We view the work to be generally short-term in nature and at the same time, because it’s such a fluid environment, I literally need to say as of two days ago, because we are very active in terms of inbound proposal activity and procurement activities as states continue to work to put the programs in place that they need to return to normal and address these immediate needs. I’ll also say that in doing this, we established relationships with new customers. And those new customers can include state public health departments, they can include state departments of employment security and while we intend to support them fully during this short-term need, it allows us to also be able to be trusted vendor to turn to as those needs could develop into longer-term needs. And so it is very dynamic, potentially fluid, but the $140 million total contract value is the signed and unsigned awards since the close of the quarter. Rick, would you like to add anything further to that?

Sure. Brendan, you know our goal in reinstating the guidance today was to provide investors with a view of our current expectation based on assumptions that we made when we were completing our planning for the remainder of the year, you know what represents our best assessment at that time as of today. You know we could get further erosion due to COVID, which would drag us down toward the lower end of guidance. You know, conversely, you know increased COVID-19-related work would push us up toward the upper end of the guidance. Want to make sure I caution you though, there is more than a normal level of uncertainty at this time and that uncertainty could result in greater variability than we’ve experienced in the past few years, but you know we’re seeing positive signs in some of the COVID pipeline as Bruce indicated.

Great, thank you –

Thanks, Brendan.

And then, I have one follow-up just with the, I guess how it relates to Outside the US – you know obviously you had to write-down UK and Australia, and then, which you know makes sense, kind of being triggered given the employment environment at the same time though there is clearly going to be an opportunity down the road for re-employment and you know welfare to work kind of stuff. So do you – I guess how do you feel about those businesses Outside the US and you know within the US as well and obviously that’s not something we might see this next quarter, but what are you thinking over the next couple of years, about how those are positioned? Thank you.

Great question, Brendan. And actually I think you read the situation correctly. You know we’ve always said that we believe that these businesses, when you frame it you know, 50% of our business Outside the US is in employment services, and we view it to be a counter-cyclical business. And so as you’ve said, we’re kind of on the down cycle of that with you know folks losing their jobs and no longer able to be sustained in their employment and hence the impact on sustainment payments under existing contracts. But by definition, these contracts are volume-based in their nature and as the volumes come back into the system, they tend to perform well. And so I’d comment on a couple of things. First, I think we’re very well positioned in countries like the United Kingdom and Australia to capitalize as the volumes return into those systems. That does – it’s predicated of course on the economies turning around in this – in the pace of the recovery and, Rick, I think rightly cautioned in his remarks, that we can’t predict at this time what the shape and the timing of their recovery will look like. In addition to that, Rick also noted that some of our UK employment services contracts have been transitioned into a cost recovery type arrangement, so that we can continue to keep our staff on board. It’s important to government that we do that so that we’ve got the staff in place and the program ready as people come back into those programs. Another thing that’s probably worth noting is that, you know in the period immediately preceding COVID-19, we’re at such a state of nearly full employment that many of these programs were designed really more to serve the hardest to serve population. So folks with you know chronic issues that have prevented their employment for years and we’ve spoken about that on prior calls. Governments now are saying, what are the – how do we need to modify the structure of these employment services programs to really address the newly unemployed, the more mainstream unemployed and what resources need to be in place, whether they’re digital services or other types of services to support that population. So you can imagine, we are spending time not just with industry partners through trade associations and so forth, but also directly with our customers, the commissioners of these programs to work with them to figure out what the best model will be, how to deliver those new programs at scale to meet the needs of the newly unemployed in the aftermath of this current outbreak.

Thanks, Brendan. Next question please.

The next question is from Dave Styblo with Jefferies. Your line is open.

Hi, there. Good morning and thanks for the questions. Wanted to inquire a little bit more about the bridge on the $1 EPS reduction to guidance. I don’t think I fully understand all the moving parts there, so hoping you can fill in a couple of the blanks there. I think you know the $0.28 is pretty clear for the welfare to work write-down. I think the prior guidance maybe sort of contemplated some of the wildfire – wildfires in Australia. So to call that maybe $0.40 and then I know you’re picking up a little bit of revenue from the Census contract and some of the other new work. But what is the other large gap in there that the plug towards EPS being down $1? Is that really related to the UK HAAS contract or some other elements of business may be perhaps shifting to a cost model instead of a performance model?

Hey Dave, it’s Bruce. Thanks for the question. I’ll start and then I’ll ask Rick to add any further color. You know it almost goes without saying that it’s impossible to predict how the year would have developed and as we finished the first quarter, we thought we had more signs that were pointing toward the bottom end of the prior guidance range, but there are also opportunities in the hopper. So it’s difficult to sit here and speculate as to how the – what erosion we would have seen had things played out without COVID, how the new work awards that I mentioned would have looked like. And the reality is really at the midway point of our fiscal year. We have gone on to a completely different vector than what we anticipated. You and I’ll just, as for the color, I’ve been amazed at the resilience of our business model and at the ability to pivot to the work from home arrangement in many instances that we talked about in our prepared remarks and our ability to actually work with our customers to gain their you know permission to do that. So you could have seen certainly much more of a disruptive moment in terms of trying to meet demand that was – remained consistent and if anything, this has become a more demand stimulative environment in the near-term for us. So now we’re resetting and there the makeup of deals in our pipeline and the near-term kind of field division that we have has changed, some opportunities being pushed out, other opportunities as we’ve discussed developing literally overnight. The response time that we’ve seen as RFPs have come through the pipeline have been you know in many instances like 48 hours. So we’re seeing both of those dynamics. But I’ll turn it over to Rick to add any further color addressing that bridge as you’ve requested.

Sure, Dave. You know as I said in my prepared comments, the most impact that we’ve had is, in the OUS segment. So the welfare to work contracts that we talked about, that $24 million was a write-down of revenue that we had – that we have recorded based on our expectations of how much future outcomes payments we would actually collect. We do expect to continue to have you know revenue impact from COVID-19 in those welfare to work contracts in Q3 and then to a lesser extent in Q4. You’re right HAAS is also impacted. We are not doing face-to-face assessments on HAAS at this time. And I did talk about the secondment that will occur, but I think that the revenue and the profit level on HAAS will be negatively impacted.

Okay. And so that’s a big part of the $0.50 delta that’s unexplained for, I guess.

Yeah. Do you have a follow-up?

I do. Comments on M&A, I appreciate that and the capital position line to preserve capital. It sounds like you’re still open to some smaller assets that would either, I suspect, enhance capabilities or expand geographic coverage. Just wanted to get a sense of have some opportunities come up in light of COVID where perhaps some other smaller companies are having trouble weathering the storm and has presented some opportunities for you guys to take a closer look at those or is there anything new in the pipeline that we should be thinking about again in light of the COVID conditions?

Good question, Dave. So the short answer is yes in terms of opportunities. As Rick said, we continue to look at really tuck-in type acquisitions and I thought it might be helpful to maybe give you a better sense of the criteria that were used to value to those. And so, as we think about a tuck-in, we generally say it needs to meet criteria, including number one, being closely aligned with our current business. So it’s really no more than adjacent – one adjacency away. Number two, it has to be available at a reasonable price and under agreeable terms and you’re right in saying that in this current environment, there certainly are smaller businesses that are having more of a struggle and that can create opportunities for us, to add capabilities and not just here in the United States, but even overseas. And number three, the third criteria would be, we don’t want any kind of tuck-in to create significant transaction or integration risk or effort or expense for us. So we’ve historically executed these tuck-ins really in all kind of economic conditions, including now in a tactical manner, to position the company for anticipated growth in new business areas, to add capabilities, to position ourselves into new geography. Generally where time is of the essence and we don’t have the either capability or timing to create that capability or presence organically. Historically, our tuck-ins have been under about $50 million in purchase price, many of those have been in the $5 million to $15 million range. But I’ll turn it over to Rick and he can add a little more color on that.

Yeah. You know, Dave, so size does impact whether or not something is a tuck-in, but I didn’t want that – I think Bruce’s answer is good from a standpoint that we don’t want that to be the – give you the impression that’s the only item. I mean I could see a $75 million revenue company actually meeting the tuck-in criteria. I could also see a $40 million company or some that’s even smaller and not meeting that criteria. It really goes back to you know looking at all of the factors that Bruce looked at.

Great, thanks.

Thanks, Dave. Next question please.

[Operator Instructions] The next question is from Donald Hooker with KeyBanc. Your line is open.

Great, thank you for the question. Good morning. So wanted to hop back on this Outside of the US thematic here. So obviously there was is this write-down in the quarter as we go forward. Can you kind of may be provide some visibility perhaps longer-term in terms of how these contracts might be structured and what the right operating margin for you guys is in those contracts going forward. So we can think about kind of a ramp back up over the next several years to a target operating margin in that segment?

Sure. Well I’ll begin and then turn it over to Rick for that. So you know these contracts are performance-based contracts in their nature, and as the volume come through, I don’t anticipate at least in one of the geographies a significant change in contract structure. One question however, that we’ve had for the commissioners in that geography is, would they consider shifting the budget allocation away from what historically has been 30% kind of upfront and 70% performance-based, more toward you know if we think about after the last recession, the structure in that contract was more 50:50 and that’s important when you start considering that you could see like a W-shaped recovery, right. Because you could get into a situation where you’ve been paid your 30% [technical difficulty] cases and you’re getting kind of that fixed payment and then we find ourselves, in some cases, you know you could see that’s where we are where with the W-shaped recovery, you have another downturn. The folks that have been placed in a – into positions aren’t unable to sustain them and then you know kind of back at it again. So, I think shifting the allocation more away from 30:70 to something closer to what we saw historically 50:50 will be an example of the conversation that we want to have with a contracting authority about what form of contract like this should take going forward. With that as the premise, you know I think that you know we would – we feel good if we’re seeing operating income margins for the Outside US employment services business in what we would characterize as the historical company target operating margins of 10% to 15%. And you know we’ve looked hard at the – and Rick’s team done a great job of looking at the historical performance of those businesses, going back you know 10 years and you can see situations where they function you know well within that range and in some instances above that and when you normalize for a contract structure as I’m – you know I’ve indicated in the beginning of my remarks, it’s very plausible that you could see that. As I mentioned, this is a very kind of live topic right now, because the commissioners of these programs are taking feedback not just from us, but from other industry participants on what shape these contracts need to take, especially where in some places like the United Kingdom, they have drifted far toward serving the most hard to serve and difficult to place population and that’s not what we’re talking about now. So Rick, would you like to add anything further?

Yeah, sure. You know I think that Bruce made most of the points that I wanted to make on this topic, but that’s fine. But it really is too early to make a complete determination, but revenue and margin should improve in this new environment created by the COVID-19 pandemic, given our tendency in this area to be counter-cyclical. But I did want to emphasize something that Bruce said before, we are already positioned well in the UK and Australia to capitalize as our contracts are volumes-based and the volume of transaction should increase. So, yes, you’re right, I’ve been saying all along that we are not satisfied with our OUS margins or Outside the US margins, but this coronavirus changes the – our outlook with respect to those businesses and we do want those – all of our segments to deliver between 10% and 15%.

Okay. And then my follow-up question would be, when I look at the sales pipeline with all the ebbs and flows and all the disorientation around the current environment, what is – how much of that sales pipeline, what should we assume sort of a win rate would be against that sales pipeline at this point? So I know you guys have expanded into new areas and you know there’s new opportunities emerging out of COVID-19, what is the – that $29 billion plus of sales pipeline? What is the conversion rate of that?

Well, that’s - yeah, I’ll begin again and as we have, we’re going to tag team this one. So there’s really two components that you have to think about, and they’re not numbers that we have historically disclosed in any detail. One is the, what we call the adjudication rate. So of the pipeline that’s in front of you what percentage of it actually ultimately is adjudicated to some form of outcome, a win or a loss or what have you. And then the second component is, of course, the win rate. And I think it is fair to say that in an environment when you are expanding into new agencies with new customers. We’ve spoken about this before in terms of the efforts in the Federal business to expand our footprint with new agencies and customers, you’re not going to see what you would customarily see in industry win rates and you know having been in this business for 30 years, we’ve customarily said, well, you know, if your new work win rate is in the 30% range, you’re really doing well. But I think 20% to 25% is a great win rate, blended between new customers and existing customers and certainly may be a little lower depending on how far you’re reaching into new places. But Rick, how would you?

Yeah, right that’s a great answer. I would want to emphasize to say the point that it is a pipeline of opportunities when we look at and we don’t – did everything that’s in that pipeline. You know we want to make sure that we chase things in a smart way and that we spend our B&P, our bid and proposal money you know wisely. So if we’re looking at a program that has a good formidable competitor – incumbent competitor, you know we might decide you know we look at and we might decide not to bid it, because that would be wasteful of our B&P dollars and we’ll save them for a situation where we have a better chance of a win. So I want to make sure it’s not just the win rate that you need to apply the factor against that pipeline.

Thank you.

Thank you. Next question, please.

[Operator Instructions] Our next question is from Jamie Stockton with Wells Fargo. Your line is open.

Good morning, thanks for taking my questions. I guess maybe the first one is just about the IT shortage comments and in general, you know are you where you need to be today? You know and if you’re not, you know when do you think you’ll get there?

Hey, Jamie it’s Bruce. Thanks for the question. So it’s an interesting dynamic, because there was a couple of things. First of all, there is the supply that we need to continue to move a greater portion of our workforce to work from home. And then there is, let’s call it, business as usual supply, right that we need, because we’re coming into, for example, the open enrollment season. And so, you know let me give you just a little bit of color on where we stand currently. From a work from home perspective, currently we’ve got 45% of our US employees working from home, another 45% are working on-site – you know practicing social distancing, wearing face masks and so forth as we’ve discussed and the balance are on leave. And it’s important to note that there are some contracts in the US portfolio, where working from home is not possible and we’ve had to implement, as we, I think mentioned here, a creative policies like shift schedules where individuals stay home for a period and then they come into the office and switch with colleagues who have been working during that period. We’ve been able to do that, while maintaining service levels on some pretty critical – mission critical contracts for our customers and earned accolades from our customers in the process. So you have 45% in the US working from home, 45% not that’s 90%, the balance then are on leave for COVID-19-related qualifying conditions which doesn’t mean that they are all sick, but the condition can include needing, for example, to provide childcare where they have no alternative, caring for a sick family member and so forth. Outside the US, there have been different regional responses as you can imagine, approximately 76% of our workforce is…

Okay, that’s great. And then maybe my follow-up, if I look at the OpEx for US Health & Human Services, it was up a decent amount sequentially. Should we think about that as a new normal or you know where there elevated costs there you know related to COVID you know or something else that could allow that to come down incrementally?

So, Jamie. I’m going to add one more thing to the prior answer and then ask Rick to answer this one you know you’ve just asked. I did want to note that we have an essential services designation from the federal government, which does help us you know get closer to the front of the line when it comes to meeting the IT demands that we have with our suppliers. Okay. And then I’ll turn it over to Rick.

Yes, two things in there. The US Health & Human Services segment had an increase in their receivable reserves. Some of that due to payment concerns with respect to the COVID-19 pandemic. We went through all of our receivables and looked at them very carefully and made some assessments based on what we were seeing at that particular point with respect to collectability. And we did have a billing dispute with one of our customers and that receivable is reserved. And we are seeing some incremental costs with respect to the COVID-19 pandemic. Remember that the US Health & Human Services segment is primarily performance-based contracts. And so when we have those incremental costs, they will fall to the bottom line as opposed to the US Federal segment, which is much more of cost-plus type of environment. So when we have incremental cost, those costs as long as they are reasonable are collectible under our contract. So, yes, we did have an increase there, but it was primarily COVID-related plus that billing dispute, I described.

Thank you. Next question, please.

I’m showing no further questions at this time. And with that, ladies and gentlemen, this will conclude today’s conference call. Thank you for participating and you may now disconnect.