Greetings and welcome to the MAXIMUS Fiscal 2022 Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Madison West, Vice President of Investor Relations and ESG for MAXIMUS. Thank you. Ms. West, you may begin.

Good morning and thank you for joining us. With me today is Bruce Caswell, President and CEO; David Mutryn, CFO; and James Francis, Vice President of Investor Relations. I'd like to remind everyone that a number of statements being made today will be forward-looking in nature. Please remember that such statements are only predictions. Actual events and results may differ materially, including those discussed in Item 1A of our most recent Forms 10-Q and 10-K. We encourage you to review the information contained in our most recent filings with the SEC and our earnings press release. The Company does not assume any obligation to revise or update these forward-looking statements to reflect subsequent events or circumstances except as required by law. Today's presentation also contains non-GAAP financial information. Management uses this information internally to analyze results and believes it may be informative to investors in gauging the quality of our financial performance, identifying trends, and providing meaningful period-to-period comparisons. For a reconciliation of the non-GAAP measures presented, please see the Company's most recent Forms 10-Q and 10-K. And with that, I'll hand the call over to David.

Thanks, Madison. This morning, MAXIMUS reported revenue for the second quarter of fiscal year 2022, which increased 22.7% year-over-year to $1.18 billion. Growth on the top line was driven primarily by the acquisitions in the U.S. Federal Services segment and the UK Restart program in the Outside the U.S. segment. Operating income margin for the quarter was 6.4% or 8.3% excluding the expense for intangibles amortization. Diluted earnings per share were $0.80 or $1.07 excluding the amortization expense. Second quarter earnings reflected our expectation for lower earnings caused primarily by delays in our core programs returning to pre-pandemic levels as the COVID response work continues its predicted decline. We also experienced some variability between segments with U.S. Federal below expectations, while Outside the U.S. exceeded our expectations for the quarter. Organic revenue growth was relatively flat in the quarter but adjusting for the COVID response work, normalized organic growth would be approximately 20% year-over-year. Let's turn to results for the segment. The U.S. Services segment delivered revenue of $398.1 million for the quarter, which represents a decline over the prior year period driven by expected reductions to short-term COVID response work. Normalizing for the COVID response work, revenue for the segment grew approximately 25%. This was all organic and driven by ramping of new work, some of which represents COVID response work that has evolved into longer term work with new customers gained during the pandemic. The segment operating income margin was 11.7% as compared to 18.5% in the prior year period. As expected, profitable short-term COVID response work has declined while Medicaid redeterminations remained paused keeping our core work operating at depressed levels. In the prior-year period, strong COVID response work helped offset those negative impacts to our core programs. A quick update on Medicaid redetermination; the most recent…

Thank you, David and good morning, everyone. I'm thrilled that we're hosting today's earnings from our new headquarters in Tysons, Virginia. We created this environment intentionally to support a hybrid workforce, maximizing flexibility and focusing on lots of collaboration space. We've shrunk our overall footprint in the Washington area while growing the Company. We created a modern and attractive space that combines visual appeal, wellness, comfort, technology, and a little fun. As we continue to seek and retain the best talent in the area, I'm certain our new home will be a differentiator. Our second quarter results were largely in line with our expectations, but our revised earnings guidance reflects how portions of our business are in the near-term, acutely tied to the current political environment and still, to a degree, the ongoing uncertainty of the pandemic. As David said, the public health emergency was extended another 90 days through July 15, which directly impacts the volumes on many of our state contracts. Based on current planning with our state clients, we estimate some engagement activity to pick up one month prior to the end of the PHE or mid-June. However, our revised guidance considers both the administration's currently stated July 15 end date and a possible further 90-day extension of the PHE. In our view, given the lack of predictability we've previously experienced, we wanted investors to fully understand the potential impact of a further extension through the end of fiscal 2022. While the timing of the PHE unwinding is outside of our control, we see certain signs supporting an unwinding and addressing the critical concern of states needing guidance. Specifically, CMS released additional comprehensive guidance on March 3, providing important details on the unwinding process and several toolkits and resources for states throughout the spring. On March 21st,…

[Operator Instructions] I will now turn it over to Madison West and James Francis with Investor Relations.

Hey. Good morning. Charlie, are you on?

I'm here. Can you hear me okay?

Just fine, Charlie. Good morning. It's Bruce. How are you doing?

Just a few questions for you this morning if that's okay. First, starting off with the guidance. You're obviously maintaining revenue guidance. It was a little bit surprising that given the magnitude of the reduction of the EPS line. Can you talk a little bit more about the factors that play there? Is it mostly a mix kind of thing that we should think about?

Yeah, absolutely. David is going to take that one, Charlie.

So all three items that I called out disproportionately affect our earnings. And while they all do create some revenue impact, it's not enough to move us out of the guidance range we gave previously. So just going through each one of them, first, on the redeterminations, they happen to be very profitable on the margin since in many cases our existing staff can handle much of that volume. And then in Australia, for the next two quarters, it's really the margin that dipped since we see revenue falling off faster than costs there and the severance charge has no revenue impact. And then the last item with the new work delays, they do have a modest revenue impact, but again, not enough to move us out of the range.

And then, just -- I know we're a little bit early to talk about '23, but, you know, if we can possibly have a little conversation about what kind of a normalized year would look like, given all the gyrations this year with the PHE getting pushed out -- COVID worth dropping off, and things like that -- maybe you could give us a sense of what kind of a normalized year might look like next year?

So, as you know, the exact timing around the PHE unwinding remains to be seen, which makes predictions for the fiscal year '23 itself difficult to do. But let me provide some data points that I think may be helpful. So, when the PHE expires and the delays abate, I would currently expect the following margin ranges, the operating income margin ranges for each segment, so for U.S. Services, 11% to 14%, for U.S. Federal in the 10% to 12% range. And for Outside the U.S., 3% to 7%. So it's the midpoint of those ranges that would put the total company GAAP OI margin at around 9%. And then, for revenue, we target sustainable mid-single digit organic growth. Our recent new work awards have been strong. However, remember, we have about $300 million of short term COVID response work. That's in the fiscal year 2022 base. We're also monitoring the potential of some form of student loan forgiveness, is that may have an impact on the top line. We do normally provide our formal guidance for the new fiscal year in November, and that's our current plan.

Anything else, Charlie?

Sure. If we could make the segue on the award side, you had a significant amount of signed awards and unsigned awards in the quarter. Maybe a little bit more color there, Bruce, on what type of work you've won there? And then, also, maybe an update on the rebid from the call center contract?

It was really a very strong quarter for us in terms of signed and unsigned. And I mentioned one contract in particular that has signed subsequent to the quarter closed, and that's our contract to provide central and regional change centers, eligibility operations really for the State of Indiana. To give you a little more color on that, this is like right in our wheelhouse. This is Eligibility Determination Services. We're the national leader in these services. We will provide them for Medicaid and SNAP and TANF beneficiaries. Our tasks include things like that you're quite familiar with, application processing, contact center operations, hearings and appeals and so forth. We will operate 10 regional change centers on behalf of the client and be co-resident in those centers with state employees, which is a model we're familiar with and then one central change center. It is a four-year base contract worth $425 million and then two one-year renewals that are not included in that number. Moving to the next one, we spoke a little bit -- I spoke a little in my prepared remarks about the awards that we were pleased to receive in the VES business. And that's District 6, which is pre-discharge examinations and fitness for duty examinations at military bases. That's new work for us. We've not been on the District 6 contract historically, and then District 7, which is supporting these medical disability examinations in the international arena. We think that together these will provide incremental revenue growth for that business next year. So we're thrilled that already with that combination with VES, we're seeing the benefits of organic growth, which we were hoping to see. The VA is really looking at this point to improve processing times for veterans and turnaround time on these medical disability…

James, just one more follow-up if I may. Just any other -- any of the large rebids that we should note about coming up.

So, we look down the road a little bit, Charlie. We've got current contract in the United Kingdom that is up for rebid presently. It's our Health Assessment Advisory Services or HAAS contract. And that's I think we may have spoken to this before. It's being combined with assessments under the Personal Independence Payment Program or PIPP program. And together, those will form a new contract called the Functional Assessment Service or FAS contract. What that really means is that those two types of assessments will be provided by a common provider on a regional basis. And so, this is like an intermediate step to an ultimate end game. We believe that the UK client has in mind to actually combine the new assessment into a single type of assessment that can serve the benefits of both programs, but this is an intermediate step in that regard. So, we are currently delivering under a two-year extension on the HAAS contract and that will take us through July of 2023 as this current procurement continues to wind its way through the process and to award. We feel as the sole provider of the HAAS program presently that we're in a very good position as it relates to the FAS or Functional Assessment Services procurement that's currently underway. So, those will really be the two that -- that one plus obviously the CCO one that we just previously discussed should be the two worth noting.

As a reminder, going forward, shareholders may submit questions to management up to one hour prior to our earning call by emailing ir@maximus.com. Bruce and David, we have two questions today. First, a shareholder has asked if you can quantify the impact of more delays on the Aidvantage business.

Sure. Yeah, as I've said, the Aidvantage program had higher transmission costs and was also impacted by the extension of the forbearance in our second quarter. So these factors in the quarter combined were the major driver for the Federal segment falling below 10% operating margin. However, looking forward with the extension, we've been able to readjust the cost structure there to mitigate a material impact of the fiscal year.

A shareholder has also asked, and our second question is if the $0.30 to redetermination impact for one quarter translates to a $1.20 diluted EPS on a go-forward basis.

David, why don't you take that and then I'll add a little color at the end.

Sure. So, our current best estimate of the $0.30 comes from the fact that we've done enough planning with customers now to know how they will approach the unwinding and what specifically our role will be in that. So our current best estimate is that the impact would be roughly $0.30 per quarter or $0.10 per month out of the gate, although I do expect this may subside a little over time.

So, to provide a little more color, as I did in my prepared remarks. Back in February when we talked about the Public Health Emergency unwinding, one of the main requests from the states that we had been spending time with was just to get more guidance on how this will happen and how -- what the rules of the road would will be, if you will. And that has been provided -- CMS provided some extensive guidance in March and continues to provide additional toolkits to states, and as I mentioned, has executed a task order for a nationwide communication plan or a communication partner for this. So the groundwork is being laid in that period, in the intervening period, we've been able to work very closely with our customers to get a sense of what the activities are that they'll need us to undertake. And in fact, in some cases, we've already begun some of those activities that are allowed prior to the actual unwinding. So reaching out to customers to validate and update their address information and other contact information so that when the time comes -- and we expect some of this activity to begin prior to the unwinding, they'll be able to start submitting updated information. And then, as I might also note, states have, once they begin the process up to 14 months to complete their case actions. So, while activities can begin as early as two months in advance and conclude after 14 months, that really gives you a 16-month window of activity. I think it's likely that -- and we should expect that some of our larger state customers that have historically done redeterminations month-by-month, so that they cover their entire caseload within a year, will apply the same process here and spread the volumes out over the coming year. So, we believe that this work will be likely more level loaded, maybe a bit more intense up-front for some of the states that want to move more quickly or in fact, in some cases, there's one state that has a legislative requirement to complete all dis-enrollments within 90 days of the PHE ending. So that may lead to an up-front level of work that then will taper down over time. But we do anticipate it's the type of work that will extend over a 12-month period in most cases for our large clients.

Thank you, Bruce and David. This concludes the Q&A session. Operator, back to you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.