Greetings and welcome to the Maximus Third Quarter Fiscal Year 2021 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, James Francis, Senior Director of Investor Relations. Thank you, sir. You may begin.

Good morning and thanks for joining us. With me today is Bruce Caswell, President and CEO; Rick Nadeau, CFO; and David Mutryn, Senior Vice President of Finance. 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 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 earnings press release today and our recent filings with the SEC, including our quarterly report to be released shortly. 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 believe that maybe informative to investors in gauging the quality of our financial performance, identifying trends and providing meaningful period-to-period comparisons. For a reconciliation of the non-GAAP measures presented, please see the company’s most recent quarterly earnings press release. And with that, I will hand the call over to Rick.

Thank you, James. This morning, Maximus reported better than expected results driven by overperformance of COVID response work, as Maximus works diligently to help governments respond to the worldwide health crisis. Revenue for the third quarter of fiscal year 2021 was $1.24 billion and diluted earnings per share were $1.51. The company’s operating margin was 11.2% for the quarter. Operating income margin is calculated after the expense for amortization of intangible assets, which increased significantly due to the two acquisitions. Excluding the amortization expense, results in an operating margin of 12.2%. COVID response work contributed an estimated $460 million of revenue in the quarter, which was approximately $185 million higher than our projection for the third quarter. The profitability of this work has been steadily improving and now delivers operating income margins above our corporate average. The CDC vaccination hotline contract and to a lesser extent, the other COVID response work are responsible for the overperformance in this third quarter. COVID response work has contributed $860 million of revenue on a year-to-date basis, and our full year estimate is approximately $1 billion. This implies the beginning of the expected wind down of this work and a step down in the fourth quarter. It is worth noting our revenue estimate for COVID response work for the fourth quarter is relatively unchanged from our previous forecast. The estimated organic revenue growth for fiscal 2021 adjusted to exclude the Census contract and COVID response work is 2.6%, assuming the midpoint of our new guidance range disclosed today. This is hampered by contraction due to the negative impact of the COVID-19 pandemic on some core programs. And while it is still early, the two acquisitions we completed during the fiscal year are both performing in line with our projections. The attained federal revenue for…

Thanks, Rick. Third quarter fiscal 2021 revenue in the U.S. Services segment increased to $436.3 million driven by an estimated $164 million of COVID response work. The segment operating income margin was 14.3%, reflecting the negative impact on some core programs, including those impacted by the pause of Medicaid re-determinations as well as push out of non-COVID planned new work. These factors also impact our fiscal 2021 full year expectations for the U.S. Services segment operating income margin, which is expected to range between 16% and 17%. Revenue for the third quarter of fiscal 2021 for the U.S. Federal Services segment increased to $617.6 million from $450.1 million in the prior year period due to particularly strong COVID response work and contributions from the two acquisitions offset by the lower revenue from the Census contract. COVID response work contributed an estimated $280 million of revenue to the segment. Results in the quarter included a full period of Attain Federal and operations for VES from the acquisition date of May 28. The operating income margin for U.S. Federal was 13.9%. The quarter benefited from higher-than-expected volumes on the COVID response work. Our full year fiscal 2021 guidance for the U.S. Federal Services segment is between a 10% and 11% segment operating income margin. For the fourth quarter of fiscal 2021, we expect a margin between 11% and 12% for the segment. Turning to outside the U.S. segment, revenue for the third quarter of fiscal 2021 was $189.6 million, Operating income was $8.3 million, resulting in a margin of 4.4%. The better-than-expected results for the outside the U.S. segment were largely due to good performance in Australia. On our May 6 call, we noted contracts with startup losses to be incurred in the third and fourth quarters in the outside the U.S.…

Thank you, David and good morning everyone. As the Attain Federal and VES acquisitions settle into our business, we are in a solid position to execute on our long-term organic growth goals across all three segments. Our position is bolstered by the benefits and new capabilities of the two recent acquisitions and our team’s unprecedented efforts throughout this past year, which have deepened our relationships with key clients and brought new clients. With 2 months left to go in fiscal year 2021, it’s natural for us to be looking towards next year when we expect to see not only macro trends, bringing improvement to our core programs, but also momentum through new programs, such as the UK Restart and additional clinical and digital IT services work afforded by Attain Federal and VES. Prior to VES, 15% of our work was clinical in nature, whereas it now accounts for approximately 25% of our portfolio. Further, the additional capabilities from Attain Federal meaningfully expand our technology consulting and growing systems integration skills, increasing our ability to address the most pressing IT needs of our federal clients, while providing internal opportunities to improve the quality and efficiency of our business process services operations. I am pleased that we are already seeing the anticipated benefits of these acquisitions to the combined companies and to our clients. We are increasing the capacity of VES to deliver on the excess inventory reduction goals of the VA, while working to identify opportunities for greater process efficiencies through new digital solutions. As an example, we have already enhanced the VES contact center to increase capacity and improve veteran outreach and exam scheduling. Our Attain Federal colleagues are delivering on complex program challenges for critical clients, while gaining the ability to bid on larger opportunities through newly available contract…

Thank you. [Operator Instructions] Our first question comes from the line of Charlie Strauzer with CJS Securities. Please proceed with your question.

Hi, good morning. This is Brendan on for Charlie. I just want to ask, first of all, on – you gave some thoughts on FY ‘22, and I wanted to ask about organic growth for ‘22 and what base we’re working off of? And then I guess in the various levers to how you get to where you think growth will be?

Great to hear you, Brendan, it’s Bruce Caswell. David Mutryn is going to take that question.

Yes. Thanks, Brendan. Yes, we laid out plenty of pieces in the script. So let me look at it one other way that we think about it. As you look at the chart in the presentation, you can see we calculated an organic revenue base for FY ‘21 of $2.819 billion, so that would exclude the COVID response work, Census and the acquisition. If you add $750 million for the acquisition and $175 million for the midpoint of expected COVID work, that would total $3.744 billion. We took a look at the FY ‘22 consensus, which is sitting at about $4.1 billion, which would imply that we need approximately $360 million to fill in, which would require about 12% growth over that adjusted organic base. Since we expect to see at least $150 million of growth from outside the U.S., and we expect core program volumes to improve, all in all, we think that’s a reasonable expectation.

Thanks, Brendan. Next question, please.

Our next question comes from the line of Don Hooker with KeyBanc Capital Markets. Please proceed with your question.

Great. I wanted to talk a little bit more and hear your perspective on – around the outside the U.S. Segment, kind of sensitivities around case volumes. I know there is a lot of assumptions that one would need to make there in terms of kind of thinking about those contracts ramping and how much volume. Can you just maybe discuss that a little bit? Thanks.

Yes. Don, it’s Bruce Caswell. I’ll be happy to start and then ask that Rick and – or David could add further color. Probably the one that I would focus on in terms of OUS is the UK Restart contract because that’s the largest of the new startups. And as we look at it, it’s a little deceptive in the sense that the unemployment rate in the UK is around 5% presently. And you might say, well, they are just getting the program going, will there be adequate volumes in that program? So to give you a little more color, there is a furlough scheme that the UK government has implemented during the pandemic that basically keeps people employed. And the furlough payments enable employers to pass those payments along their employees as you’d imagine. So they really don’t count as looking for work. And that furlough scheme comes to an end on September 30. And as all those folks start losing their furlough money, the unemployment rate will go up because they are no longer considered obviously as they have been. And there’ll be an increase in job seekers into the market. A couple of other points, it’s a mandatory program so that anybody that’s been claiming benefits or is claiming benefits from government, has to go through this program in order to avoid putting their benefits at risk. And we receive referrals exclusively from the UK Jobcentre Plus offices. The analysis that we have seen that the government did that underpins the procurement itself suggests that the eligible individuals that will be coming through those offices actually exceed the planned entrance under the program and the contract as it’s designed. They had an independent consultant do that work. We also, as you can imagine, did a lot of…

Yes. Just to reinforce, that you’re correct. Those are outcomes. That is an outcomes-based contract, and the UK is the biggest piece of it. I also wanted to make sure that you remember that we did those contracts to provide more than a 10% operating income margin over the life of the contract. So they will be more back-loaded on the contract life, but they will also create a back loading in FY ‘22. The back half of the year will be definitely improved by the maturity of those programs outside the U.S.

Thanks, Don. Do you have a follow-up or...

Yes. Can I ask one more, if you don’t mind. One of the things I’m sort of trying to understand is that the Biden Administration’s been pretty aggressively encouraging people to go on these exchanges. I would think that’s positive for you. And I would think I would see that in your numbers, but maybe it’s not. Can you walk through how you guys work with these exchanges obviously, it’s better in the state?

Sure. Don, it’s Bruce. I’m happy to do that. So we have two roles, as you well know. We support the federal marketplace through the CCO contract that you’re familiar with. And that’s the – I’m going to say it’s roughly now 37 or 36 states that remain on the federal marketplace because there have been some states that have been moving to state-based exchanges. That’s actually been positive for us as well as we picked up work in New Jersey and most recently in Maine, working with those states to implement their exchanges. There are others in the pipeline. It’s well known that Virginia is considering and we will be moving to a state-based exchange as well. And we have our legacy state-based exchange contracts in large states, including New York and others, right, that you’re familiar with. So a couple of things. First of all, I think that there was a reasonable uptick in exchange enrollments corresponding to the extended special enrollment period that was, I believe, kind of January 15 through May 15 of this year. Some numbers would suggest that there were about 2 million additional Americans that were enrolled during that period. And those volumes would be baked into our numbers, they are spread out significantly, but we were able to accommodate that within the staffing profile, particularly on our large federal contracts. I think what starts to get more interesting are two things. The Biden Administration has come out with a proposed rule that still has to go through the regulatory process that would further encourage and create an environment where more individuals can get into exchange benefit plans over time. And the reason they are focused on this is, as redeterminations come back in for Medicaid, there is a concern that you could…

Sure.

Thanks, Don. Next question, please.

Thank you. [Operator Instructions] Our next question comes from the line of Richard Close with Canaccord Genuity. Please proceed with you question.

Great. Thanks for all the detail in the presentation and the call, especially on organic growth, so really appreciate that. Bruce, I was just wondering if we could just talk about the pipeline a little bit. Obviously, you’ve done these acquisitions here over the last several months. And how do those factor into the pipeline? How should we be thinking about that, whether that they have been included in the pipeline, whereas maybe the last time you reported, they were not?

I’m happy to address that. Thanks, Richard. Good question. The – couple of points, and then I’ll ask Rick or David, if they have anything further to add. The pipeline does reflect, if you will, the bringing together of the Attain Federal pipeline and our existing Maximus pipeline and obviously, any new opportunities that have been created as a consequence of that transaction. Maybe a small point, but in my prepared remarks, we talked about the new award at the IRS, and that was made under the Alliant 2 vehicle, and we’ve talked for some time about how important that vehicle is to us and our future and how it’s a vehicle that was very desirable for Attain. So the pipeline would reflect new opportunities, for example, that Attain Federal would now have access to Alliant 2 or other vehicles that we had. So that is baked into the numbers that you’re seeing. VES, on the other hand, it’s important to note, never really did any business development outside of the Veterans Administration and for good reason because the work that they have during these medical disability examinations has been quite significant, and there is an excess inventory that the existing vendors need to address. And that excess inventory has only really, quite frankly, been building as Congress has been looking at and authorizing additional benefit categories. And so there are things like the Blue Water benefits related to Agent Orange. There is the [indiscernible] benefits and other benefits that will continue to support the significant inventory of work to be done just for the VA over time. Now that said, when we look hard at other players in that business, it’s evident to us that there are there is significant other work in federal government agencies, in particular, in places like the Defense Health Administration or the ARM services that are aligned extremely well with the capabilities that we now have as part of the Attain acquisition. So there are pipeline opportunities out there, but don’t forget, our pipeline right now only captures opportunities that are 2 years out or closer. And so we’re absolutely focused in the near-term on supporting our VA customer. I think we’ve said before that if we anticipate pipeline yield from the VES acquisition, it’s more probably of a ‘24, ‘25 event because it will take some time to develop those opportunities and may be further than 2 years out of this time and not yet reflected in the pipeline, but they are meaningful from my perspective, having looked at them and looked at those programs and assessed our competitiveness, they are certainly meaningful in nature. And David is going to add something.

Yes, Richard, just to clarify one thing. The Attain pipeline was also included in our 3/31 pipeline number since we had acquired them on March 1.

Great. Richard, do you have a follow-up?

Yes. I was going to follow-up, and this is a question from left field, but we cover Cerner. They are obviously doing the EHR modernization for the VA. And there is been a lot of questions and whatnot with respect to that process going forward and delays. I’m just curious, with your VA business, is there any like maybe collateral damage with that program in terms of just mind share at VA? Where maybe they are so focused on that, that other contracts and stuff like that, maybe get pushed to the side or any thoughts in and around that? I know it’s an odd ball question.

No, it’s an interesting question. And I think I have two responses. The first is that we’re talking about two different parts of the VA for the programs that we administer versus the Cerner one. If I’m not mistaken, the Cerner implementation is really focused on the Veteran’s Health Administration or the VHA. And our customer for the medical disability examinations is the Veterans Benefit Administration or VBA. And so kind of a separate procurement organization, certainly separate program offices. Where there might be like a long-term downstream impact, I guess, would be if veterans are authorized for certain benefits, and those benefits also correspond with further health care in the VA system, to the degree that the Cerner implementation some way slows down the delivery of healthcare, there could be effect on all veterans, right? But there is really no – but getting them in the front door and getting them determined eligible for benefits is a completely independent operation and independent function from the function of the hospitals themselves and the implementation of the Cerner platform. The area where the second half of the question or really more maybe 25% would be, we are excited about the new capabilities that Attain brings us. And historically, Attain has done a little bit of work in the VA, but not a lot. And we think there are opportunities related to technology over the longer term in the VA, where, now being a more known entity and known quantity to the VA, we could be eligible to bid. So I would hope that over time, we developed a pipeline of technology-related opportunities in Attain’s wheelhouse with that customer as well.

Okay, thank you.

Thanks, Richard. Yes. Operator, next question, please.

Our next question is a follow-up from Brendan Popson with CJS Securities. Please proceed with your question.

Thanks for taking our follow-up. I just want to ask on VES. Your annualized numbers are coming in toward the high end, I believe, from what you originally – the range you’ve given us. Can you just – is there some wins in there or is there some seasonality or a temporary benefit? Can you guys address that or if it’s just doing well? And then if you could address your – the thoughts you gave on – for FY ‘22 for VES and Attain. And I think if I – my back of the envelope, so that’s maybe 4%, 5% organic growth for those. But if you talk to those things, that would be great?

Yes, it’s David. Thanks, Brendan. Yes, as we said in the script, both businesses are doing well. I think part of what we’re seeing is just better visibility on our part, having both acquisitions here. They do continue to perform well. VES’ work is volume-based like many of our contracts that we’re used to. So volumes are running pretty well. And think that’s what caused us to kind of move to the higher range of what we provided before.

Does that answer your question, Brendan?

Yes. And then is like that mid-single-digit growth? Is that the right way to think about it for ‘22 based on what you gave in long-term? Is that your goal with both of those?

Yes, I think that’s fair.

Great. Thank you.

Thanks, Brendan. Operator, back to you.

Our next question comes from the line of Donald Hooker with KeyBanc Capital Markets. Please proceed with your question.

Great. Sorry to keep bugging you, but one follow-up for me. I’m trying to sort of look at your sales pipeline and trying to discern whether you’re seeing growth there. I know you guys have put new sales leadership in Federal and U.S. Services. And I know there is a lot of like ups and downs in the broader macro backdrop. Can you kind of talk about how much maybe Attain added to the sales pipeline? Following up on the former, I think Richard’s question. I’m just trying to get a sense of what is that trending higher? Or – can you elaborate on that, if that’s possible?

Sure. Maybe what I should do is begin by giving you a little bit of a backdrop on the comment we made about some delays in the pipeline still related to the pandemic and let you kind of break that up by segment, and then we can get into the details. We’ve probably seen the most pronounced delay or pressure in the U.S. Services Segment as it relates to – I can think, for example, there are several amendments related to our work for certain customers that we would have previously thought would fall into FY ‘21, which are more on the bubble, it could be Q4 events, could be FY ‘22 events. And those do, I think, reflect the fact that state level customers have less robust at times procurement shops and contracting kind of capacity. And when they are focused on pandemic-related responses, things that maybe more routine in nature or new programs that it’s okay if they shift a little bit can be delayed and so I’d say the U.S. Services pipeline, if anything, has been affected by that. Outside the U.S., I would say that employment services in that area, in particular, we’ve seen very solid procurement cadences. I mean, as evidenced by the new wins we’ve had and so forth. So that then brings us to federal. Federal has probably been the strongest from a pipeline standpoint in terms of new opportunities. We are thrilled that – a good example would be the IRS. The IRS has been in the engine room of responding to pandemic with major call centers stood up to handle inquiries from taxpayers and so forth, but still at the same time, moving ahead with procurements related to modernization and some wins that we spoke about in my prepared remarks. And…

Thank you.

Great. Operator, back to you.

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session and with that, the conclusion of today’s call. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.