Greetings, and welcome to the MAXIMUS Fiscal 2020 Fourth Quarter and Year End Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Lisa Miles, Senior Vice President of Investor Relations for MAXIMUS. Thank you, Ms. Miles. You may now begin.

Good morning, and thank you for joining us today. With me is Bruce Caswell, President and Chief Executive Officer; and Rick Nadeau, Chief Financial Officer. I'd like to remind everyone that 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 1A of our annual report on Form 10-K. 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 analyses of results and believes this information may be informative to investors in gauging the quality of our financial performance, identifying trends in our results, and providing meaningful period-to-period comparisons. For a reconciliation of the non-GAAP measures presented in this document, please see the company's most recent quarterly earnings press release. And with that, I'll hand the call over to Rick.

Thanks, Lisa. As you know, the COVID-19 pandemic had a significant impact on our operating results for fiscal year 2020. Bruce and I would like to thank all of our MAXIMUS teams, who, with incredible heart and dedication, worked tirelessly to keep us safe when we were required to work on-site, and transition staff to work remotely where possible. We adopted a hybrid operational model in March that enabled our teams to continue to operate essential programs in order to connect citizens to vital services in this pandemic-impacted world. As noted in our press release this morning, total company revenue for fiscal 2020 increased to $3.46 billion, compared to $2.89 billion in the prior year. Approximately $330 million of the revenue increase was attributable to the Census Questionnaire Assistance contract in support of the US decennial census. The fiscal 2020 topline also benefited from new work in the US, assisting with COVID response efforts, where we support governments with their public health responses in areas such as contact tracing, disease investigation, test results, reporting, COVID information lines, unemployment insurance claims processing, and other COVID related assistance. This work contributing to organic growth for fiscal 2020 of 15.7%, or 4.6% excluding the census contract, and was tempered by declines in our operations Outside the US. While COVID related revenues increased as a result of the pandemic, our fiscal 2020 earnings declined. Our full year operating margin was 8.3%, and diluted earnings per share were $3.39 for fiscal 2020. As we have explained previously, there are three primary areas of negative impact to fiscal 2020 earnings. One, we experienced reduced volumes on several large US programs, where both State and federal government clients instituted temporary program changes in response to COVID-19. This includes, but is not limited to, the halting of Medicaid…

Thank you, Rick, and good morning, everyone. The US 2020 general election is top of mind for us all. So, I want to start there. While some certainty remains, such as with the Georgia Senate runoffs in January, we're in a good position to address our perspectives on the Biden-Harris administration and congressional results, as well as some anticipated implications for MAXIMUS. As some expected, the projected blue wave did not materialize, creating a likely indicator of a more moderate approach by Congress and the new administration for at least the next two years. Generally speaking therefore, there are headwinds and tailwinds, as Democrats have tended to design and promote more generous social welfare and public health programs, while Republicans tend to focus on program integrity, as it relates to access, coverage and eligibility criteria. As we've seen through our own history serving government, both parties see value in public-private program delivery models, often for different reasons. A good example of this developed during the pandemic, when the volume of unemployment claims quickly overwhelmed traditional State resources. 37 States have turned to contractors for unemployment insurance application processing assistance, under the authority of the CARES Act, with 21 under Democratic governors and 16 Republicans. We've been fortunate during this period to secure unemployment insurance work with 17 States, both Democrat and Republican. As you know, our nation continues to face a variety of challenges, including a global pandemic and subsequent high levels of unemployment, impacting specific sectors of our economy and straining social welfare and health safety net programs. Both Congress and president-elect, Biden, will need to address these challenges, and do so in the context of record deficit spending. For decades, MAXIMUS has been a partner to government, as it navigates the impacts of economic shocks and uncertainty that…

Thank you. [Operator Instructions] Our first question today is coming from Charlie Strauzer of CJS Securities. Please go ahead.

Good morning. Maybe this is for you - Rick, maybe you can expand a little bit more on your margin assumptions for next year, specifically in the OUS. Are you kind of expecting to see a kind of typical ramp of upfront expenses to support higher expected caseloads there?

Yes. A good question, Charlie. A significant portion of next year's growth, as you note in the OUS segment, is driven by contracts that are currently signed and in the MAXIMUS contract portfolio. This includes a lot of new programs such as our Job Entry Targeted Support Program, we call JETS in the UK, an employment program that's targeting recently unemployed people due to the pandemic. Participants participating in that program must be out of work for three months or more. The program provides tailored flexible support to get participants back to work, including specialist advice on résumé and interview coaching. Yes, we're beginning to see the rise in caseloads in markets as certain economies emerge from the pandemic. That includes Australia. Yes, you're right. Q1 and Q2 are going to be impacted by headcount growth as we prepare for those increased volumes. Q2 would also be impacted by seasonality. It's normally a slower period for Employment Services contracts. And as you know, pending change orders can always be a factor with respect to timing. Remember, we had a write down in the second quarter of this year of $24 million as a result of the pandemic, and the impact of the pandemic on our Employment Services future outcomes. That is thought - obviously not expected to be forecasted to repeat. I hope that answers your question.

That's great. Thank you. And just my follow-up is probably for Bruce. Maybe you can give us a little bit more of your thoughts about the incoming administration and some of the longer term opportunities that you might see from the Biden administration. Thank you.

Sure, Charlie. Again, as you well know, we get this question a lot, which is, what might this administration mean? it's complicated. So we always start by reiterating what we've said for some time, which is the Democratic administrations tend to spend more and outsource less, and Republican administration has generally been the opposite. But with that, with the global pandemic as a backdrop, we strongly did social welfare programs and of course public health programs, we’re likely to see some meaningful increase in funding under a Biden administration. We also know that access to affordable healthcare is a top priority to the Biden administration. And the president-elect has certainly advocated to build upon the Affordable Care Act. And we'd expect him to do that through a number of means that could be executive orders and regulatory means. Of course, the outcome of the special Senate election in Georgia, kind of is an overarching consideration here because more broader measures that might require congressional action, obviously would hinge on that outcome. But this underlying premise is to provide a greater coverage for Americans. Some of the things that the president-elect has spoken about include, increasing access to individuals through a public option. What does that mean? One thing is potentially to expand the age of eligibility for Medicare, making Medicare an option for individuals that are 60 to 65. Other factors that you might see implemented would include eliminating the income gap for tax credit eligibility under the Affordable Care Act, which has now passed 400% of the federal poverty level. As a reminder, 400% of federal poverty level is about $100,000 for a family of four. In addition to that, the president-elect has talked about increasing access to a public option for individuals in the 14 States that don't…

Thank you very much.

Thanks, Charlie. Next question, please.

Thank you. Our next question is coming from Donald Hooker of KeyBanc Capital Markets. Please go ahead.

Great, good morning. Thank you for the questions. So I wanted to dive into the - sort of the Medicaid challenges that you're facing, and try to understand the dynamic here. I understand the redeterminations. Does this sort of - is this is some - is this going to snap back perhaps next year? How does this work? Is this all linked to the Public Health Emergency? So at some point, that's lifted and then you guys see sort of a snap back in work, maybe even catch-up work over relating to the sort of Medicaid redeterminations that have been suspended. Can you walk me through that?

Look, I will, first of all, give you a quick answer to the end part of your questions. Yes. We believe that the redeterminations that are building up now in backlog, will have to be addressed at some point in the future. So like we said during my prepared remarks, it's really not a question of if, but when as it relates to that. Now, a few things quickly on the redetermination. The - another word for this is kind of maintenance of effort. States have to maintain their current level of effort on Medicaid, and that's providing access to individuals for health benefits during this Public Health Emergency. An interesting kind of nuance is that the enhanced federal matching money, the 6.2% that States are getting during this Public Health Emergency, extends through the end of the order in which the Public Health Emergency ends. So presently, Secretary Azar, announced a 90-day renewal of the declaration. That takes the Public Health Emergency through the end of January - actually through January 20th of 2021. The funding, therefore, would be available to stay through the end of March. The maintenance and effort requirements, however, end in the month in which the Public Health Emergency ends. So he would end in January of 2021. So they get some additional funding, but they could resume redeterminations in that quarter. The other question is, what's happening with Medicaid enrollment? I think - you know, and we've talked about this before, Don. We’ve been studying very closely the relationships between unemployment and Medicaid enrollments, and a couple of interesting facts. One is that Medicaid enrollment has increased between August of 2019 and July of 2020, which is the period for which the most recent data bill, by about 4.2 million individuals or 6.6%. Interestingly, for adults, it increased 8.4%. So we have already seen some enrollment increases in our State Medicaid contracts, but as we indicated during our prepared remarks, the tailwind of these increased enrollments, which nationally has been about 1.6% to 1.2% per month, has not yet been sufficient to overcome the headwinds from the reduction, or I would rather call it the temporary suspension of redeterminations. But there will come a point, right, where that flips and redetermination backlogs are there that then need to be worked. Hope that helps.

Yes. I guess maybe for - just, can you give us a sense as to - maybe roughly quantify that? Is there going to be sort of a step up that occurs? I mean, who knows when the Public Health Emergency ends, but is there - if - what was the headwind from that pause in redeterminations? It feels like much …

Well, I guess what - yes. Well, we - I would point you just back to the guidance that we just provided. We bake that into our views for FY’21 based on the current end date for the Public Health Emergency that I mentioned. And so if there's going to be any increase in the work related to redeterminations and further eligibility in enrollment work, that would be incorporated obviously in the second half of the year in our guidance.

Okay. Thank you so much.

Thanks, Don. Next question, please.

Thank you. Our next question is coming from Richard Close of Canaccord Genuity. Please go ahead.

Great. Thanks. Congratulations on the year, given everything that's been going on. First question maybe to dive in a little bit deeper on the Outside the US, Rick, I appreciate your comments on the profitability there, but as we think about Employment Services, whether it's the UK or Australia, and it has been challenging maybe over the last five years or so with that programs changing and whatnot. Can you just talk a little bit about your confidence with respect to the new contracts that you're seeing and then the opportunity on the Employment Services? You mentioned Australia improving some. Just trying to gauge what your confidence level is with respect to that business,

Sure, Richard, and all good questions. And yes, you're right. We have struggled with the high employment rates and the low unemployment rates historically. The contracts that we have - 50% of our work outside of the US is in that Employment Services area. And as you know, they're volume-based contracts where we get paid for outcomes. When you have low unemployment rates, you're going to be struggling with the level of activity and volumes. And so that has been our historical issue. Unemployment rates are rising now, but that's as a result of the pandemic and we've had closed economies. We are beginning to see the volumes appear, and we are beginning to do our hiring in advance of those unemployment volumes. So, yes, I mean, these are contracts that are in the portfolio and signed today, and we're beginning to see the signs of the volumes appearing, and we are starting to do the hiring that we're going to need to service those volumes. Does that answer your question?

Yes, I guess. Moving on …

Give me a follow up then.

Well, I mean, I can get with you. I mean, the contracts - the programs, I should say, have changed over the years, and maybe especially in the UK. And I'm just trying to gauge, are we going to start this program and then after a year or so, it's - they're going to say, we're moving onto something different? There’s just been a lot of changes, and it seems like it's created a lot of noise over the last four or five years.

Yes. Okay. Well, two points. One - by the way, in the United Kingdom, we are on cost reimbursement at this particular point, which was good for us. We typically prefer pay for results, but obviously in the pandemic world, that was helpful to us. And they did change the payment structure in Australia to help us. So there was a little less payment results oriented. So as we go forward, I mean, I think if we continue with reasonably high unemployment rates, then the programs that we have are going to be required. And I think that we're going to be called upon to service those. If we get back into low unemployment rates in 2023, 2024, you've seen history. History told the - had the governments tell us to begin to work on other types of things in harder to serve populations. And so it'll be more challenging for us.

Okay. That's helpful. Do I get to ask a follow up or did I use that?

Sure.

Absolutely, Richard.

Okay. so, maybe not to be negative, but on MAXIMUS public health, obviously that's a great opportunity for you, I think, given everything that's going on and vaccines and whatnot. But if I look at the census, obviously there was some investor interest in the drop-off census once that program comes to an end. So as I think about MAXIMUS Public Health, at some point, hopefully this COVID situation comes to an end. Bruce, I'm curious your thoughts in terms of investing in the buildup of MPH and the opportunities that exist there, and then thoughts of what happens after the water's under the bridge or over the bridge, whatnot, with respect to the need for the MAXIMUS Public Health business.

Absolutely, Richard. And I can say, you're characterizing it correctly. The water right now is over the bridge and hopefully it will come back down. Our intent in making this investment is that it is actually a component of our long-term strategy to become more clinical as a company. And so I'm glad you asked the question because it's not a knee-jerk reaction to a one-time crisis, but rather an investment that gives us a team of folks with an incredibly diverse set of skills and backgrounds that can help our customers as they, not only attack the current global pandemic, but one of the big lessons learned from this pandemic was, a lot of people that just weren't ready. And so we do need to be mindful of the fact that there could be further pandemic situations, hopefully not at the size that we're seeing presently, but over the course of the next several decades. Number two, this is a team that has tremendous experience and background in a lot of areas of public health. And public health crises are significant around the world, in particular the percentage of populations with non-communicable disease states and chronic conditions and co-morbidities. And so we've actually - we're having this public health team be resident within our federal organization, but it's really an asset to the entire company. And as I've spent the last few days on our business development calls going around the world, we've had representatives from the public health team on the phone, talking with folks in our Asia Pacific region, in our Gulf region and so forth, about the public health crises that a lot of those governments are facing, whether - candidly, during the COVID period, access to appropriate mental health services for large populations is becoming more and more important. But then there are also countries that have a significant public health issues as it relates to diabetes and obesity and other chronic conditions. So this is an organization that is incredibly well equipped in the near term, because for example, its leader, Dr. Andrew Summers, previously worked in the Office Of Health Policy for the Secretary of Planning and Evaluation at HHS, and worked on things like Zika and Ebola, prior pandemics. But the team is broad enough and their experience is deep enough that they can certainly help us on the broader public health mission that we're executing on, which is part of our clinical evolution strategic process that's coming.

That's a great answer. Thank you very much for allowing me to ask that question. Congratulations.

Thanks, Richard. Next question, please.

Thank you. [Operator instructions] Our next question is coming from Dave Styblo of Jefferies. Please go ahead.

Hi there. Good morning. Glad to see Richard got them all again. That’s fair. First question I had, and I missed the first 40 minutes, so I apologize if you've covered this already, but to circle back to the guidance, the revenue outlook, $3.3 billion at the midpoint seems quite a bit higher than what you were signaling during the last call. Although the EPS seems pretty consistent and you were trying to talk that down from where consensus was, and consensus listened to some extent. So I'm curious what - why aren't we seeing the same EPS flow-through as we are on revenue being higher than what we were thinking it should be? It sounds like maybe there was some investments. Is that sort of the overhang right now, or are there other explanations for that?

Dave, Rick. How are you doing? Yes, it's a good question, and we are looking at it, and obviously the answer is, that is many different factors. We are seeing some revenue reductions on performance-based contracts resulting from the COVID pandemic. As I indicated in my prepared remarks, we have seen some pause in student loan repayments, which have impacted our debt management contract. Last quarter, I provided the example of the impact of workers' compensation claims in California on our independent medical records review on workers' compensation claims. We did talk about the suspension of redeterminations in the United States on the Medicaid. When we do - we are filling in a lot of things with the COVID response work. That is accretive work, but it's coming in at margins that are less than our average, and it puts some downward pressure on us there. We talked previously and continue to put effort on business development and marketing, particularly in our US federal segment, which we believe can be a growth area for us. And we also previously talked about developing technical capabilities that are tied to those growth initiatives. So I think what you're seeing is, yes, lower margins with better revenue. And I really blame the - it on the pressure, on some of our core work during the pandemic, and then us filling in the topline with that COVID response work, which really doesn't have as good a margin, but is accretive as those core programs.

Got it. Okay. And then my one follow-up would be on the new work in the pipeline, that looks like to me, using some back-of-the-envelope math there, that it's up about 17% sequentially from the fiscal third quarter. Looks like most of that is in RFPs that haven't dropped yet. But I'm curious just to, one, confirm that, and two, understand if you can - you could provide any color if that's related to maybe just a couple of contracts that have larger dollar revenue opportunities, or if there was just a series of contracts that are now coming to market in the RFP?

Dave, it’s Bruce. Why don’t I start and then ask Rick to add some color commentary as well. So, we’ve provided a little bit of color on the pipeline and new work in our presentation, obviously, and the press release as well. And I would say that if I look at kind of the composition of the pipeline, it's interesting. There’s - about three, four months ago, I would have told you that the federal government pipeline was largely kind of unchanged. Deals were flowing through. Most of the disruptions, if were, were at the State level, because States were shifting so far to do kind of emergency pandemic-related procurements. And in addition to that, outside the US, we saw some slowdowns in some particular areas, but otherwise kind of moving ahead. The answer now is that the federal government still in a few agencies, has had to prioritize the pandemic themselves. And so if I look at CMS, some of the deals that we would have seen in the pipeline this year, are being pushed out at least a year. Now, that's good to be the incumbent, you're just getting contract extension, but if you're hoping to go after it, it's not. Other agencies, it's a little bit more mixed, like at the IRS, on the one hand, we've benefited from the procurement in the customer contact center environment, which was the first of a kind at the IRS and a government agency that we've been hoping to serve for years, are proud to serve now. But there were other procurements that were delayed as well. So at the federal level, it's - I guess the final point I'd make would be, it's been good to see that some of the transformational procurements that are the larger kind of…

No. Sure. I just want to just make sure that we say again, I mean, all of this has been built into our guidance. The amount of uncertainty that we face at this particular time is unprecedented in our recent history. And that's both upside and downside. So we've done the best we can to get - put all of that in our guidance.

Seeing all the good deeds.

That's good. Thanks. I'll let others go.

Thanks, Dave. Operator, next question, please.

Thank you. Our next question is coming from Richard Close of Canaccord Genuity. Please go ahead.

Yes, thanks. I'll keep it quick here. With respect to the employees, I think it’s Slide 12, 80% survey on your employees. Can you talk a little bit about who's required to be in the office? And maybe just give us a little bit of an update with respect to that and the 80%. Do you do these surveys on a regular basis, and any thoughts in and around those metrics?

Sure. As I mentioned during my prepared remarks, at our peak, we were able to transition 63% of our US workforce to work-from-home, and outside the office is actually 76%. Not all customers are able to have us work in a model with everybody working from home. So, in some instances, for example, supervisors need to be in the office to remotely monitor and manage the employees that are working from home. Another factor is training. We found that over time in a number of our programs, training is best delivered initially in an onsite manner, and that gives individuals an opportunity to not just learn the material, but ask questions and then go through what we call a nesting process, where they're taking their initial calls in a very closely monitored environment. And then they can develop to the point where they may be able to then go and work from home. So in every instance, we've obviously been super careful to maintain appropriate protocols in all the facilities so that we're staffing at appropriate levels, given local conditions and rules, because often local governments limit the kind of percentage occupancy in facilities and so forth, and ensure that we're keeping our employees safe. You had asked about how frequently we survey our employees. We've surveyed them more frequently during COVID than maybe historically, because we really want to get a sense of how we're doing by that. We want to make sure that they feel that they're being protected in the workspace, and that their income is being protected appropriately as well. And hence the statistics that we offer during the call. We’re moving as a company toward an annual employee survey where we'll look at effectively kind of a Net Promoter Score number that will give us an indication of employee satisfaction with what we're doing. And we began this actually shortly after my becoming CEO, and we’ve really worked hard to address factors that are so critical to our employees, like the feeling of whether they're supported by their supervisor, whether they're getting adequate opportunities for career development and so forth. So, employee engagement is a very important factor, and I’ve close cut into that courses in the area of diversity, equity, inclusion that I mentioned during my remarks. Hope that helps.

Okay, thank you. Yes.

Thanks, Richard. Operator, do we have any further questions?

We do not have questions at this time. Ladies and gentlemen, we have reached the end of the question-and-answer session and are out of time for today's call. MAXIMUS thanks you for your time and participation, and you may disconnect your lines at this time.