Maximus, Inc. (MMS) Q3 2022 Earnings Report, Transcript and Summary

Greetings and welcome to the Maximus Fiscal 2022 Third 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. Please note that the slides on today’s webcast are user driven. It is now my pleasure to introduce your host, Ms. Jessica Batt, Vice President of Investor Relations and ESG for Maximus. Thank you. Ms. Batt, you please go ahead.

Good morning and thanks 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, as a result of the risks we face including those discussed in Item 1A of our most recent Forms 10-Q and 10-K. We encourage you to review the information contained in our 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, Jessica. This morning Maximus reported revenue for the third quarter of fiscal year 2022 which decreased approximately $118 million to $1.13 billion as compared to the prior year period. This is net of a $413 million decline of short-term COVID response work, which has largely concluded as expected. The decrease was offset by a combination of organic growth and acquired growth from acquisitions in the U.S. federal services segment. Operating income margin for the quarter was 4.8% or 6.9% excluding the expense for intangibles amortization, diluted earnings per share were $0.51, or $0.78, excluding the amortization expense. Third quarter results were negatively impacted by a contract in the outside the U.S. segment, which required a write down of $11.7 million or $0.14 of diluted earnings per share. I will provide further detail in the segments’ discussion. Absent the write down this quarter reflected our expectation for lower earnings caused by declines in profitable short-term COVID response work, while also facing lower volumes in our core programs, as Medicaid redeterminations remained paused. This quarter while organic revenue declined, if you adjust for the COVID response work, normalized organic growth would be approximately 21% as compared to the prior year period. As usual, we have included a table in the appendix of today's presentation showing a reconciliation of normalized figures. Let me take you through the segments. The U.S. services segment delivered revenue of $399 million for the quarter, which is a decline from the prior year period driven by expected reductions to short-term COVID response work. Normalizing for this, revenue growth for the segment was nearly 40% due to a combination of ramping of new core work, as well as COVID response work that evolved into longer term work with new customers gained during the pandemic. The new core work includes the previously delayed clinical assessments work that went live in the third quarter. The segment operating income margin was 8.0% as compared to 14.3% in the prior year period. On the last call, I noted a margin step down in this segment, which these results reflect, profitable short-term COVID response work has declined while Medicaid redeterminations remain paused, which reduces volumes on core program. In the prior year period strong COVID response work helped offset those negative impacts to our core program. For the U.S. federal services segment. Third quarter fiscal year 2022 revenue decreased to $526 million due to expected reductions to short-term COVID response work, partially offset by contributions from the VES and Aidvantage acquisition. While revenue decreased on an organic basis, normalizing for the COVID response work. revenue for the segment grew approximately 6%. The operating income margin for U.S. federal services was 10.4% in the third quarter, as compared to 13.9% in the prior year period. It's worth noting that in the prior year period, this segment benefited from particularly high volumes of COVID response work. Turning to the outside the U.S. segment, third quarter revenue increased 6.0% to $201 million as compared to the prior year period. This is net of currency impacts which reduced revenue approximately 9%, organic growth was about 11% and normalizing for COVID response work organic growth was about 21% and driven primarily by continued ramping of the U.K. restart program. The segment recorded an operating loss of $11.2 million as compared to an operating profit of $8.3 million in the prior year period. As I mentioned earlier, this quarter's loss was driven by a write down on a project and the implementation phase, where we recognize revenue on a percentage of completion basis, making this a somewhat unique contract. Due to higher forecasted cost, we had to book a forward loss provision this quarter. The mechanics of the forward loss provision mean that we took the loss in the third quarter, and if the forecast holds, we would break even over the contracts remaining life. Results for outside the U.S. this quarter, also included severance tied to the job active contract in Australia, following the rebid, where we realized a higher than expected market share reduction on the successor contract. A quick update on the U.K. restart program. It continues to perform slightly above expectation with volumes ahead of the latest customer forecast. Let me turn to balance sheet and cash flow items. As of June 30, 2022, we had debt of $1.49 billion and we had unrestricted cash and cash equivalents of $94 million. The ratio of debt net of allowed cash to pro forma EBITDA, as calculated in accordance with our credit agreement is 2.9x, which puts us toward the upper end of our target range of two to three times. The increase to the ratio was driven by a combination of a modest increase to our borrowing, and a lower trailing 12 months of EBITDA due in part to lower results for this quarter. Cash flow from operations totaled $58 million, and free cash flow was $45 million for the three months ended June 30. Cash flows were lighter than expected due to timing of certain large collection, with $80 million coming in on the first two business days of July. As a result, our DSO increased to 70 days at June 30, but are still within our target range of 65 to 80 days. We purchased approximately 706,000 shares totaling $48 million in the third quarter and since quarter end, we have purchased 354,000 shares, totaling $22 million. As for the remainder of fiscal year 2022, our expectation for the full year is for revenue to range between $4.55 billion and $4.65 billion, and for diluted earnings per share to range between $2.85 and $3.05 or $3.95 to $4.15 on an adjusted basis, which excludes intangibles amortization expense. We are narrowing the revenue guidance around the $4.6 billion midpoint, which is unchanged from prior guidance. On the bottom-line, our prior guidance could not accommodate third quarter results and in particular, the write down which was the primary reason for the takedown. As a reminder, the low end of prior guidance already assumed that PHP would not expire prior to the end of fiscal year 2022. So that aspect of the forecast does not further impact this year. Another factor expected to put pressure on earnings for the final quarter this year is anticipated expanded volumes in the VES business and U.S. federal services related to the PACT Act. While we expect the potential volume increase to benefit fiscal year 2023, the costs necessary to increase staffing levels would be incurred this year, including investments in existing staff to promote retention. The second half of fiscal year 2022 includes between $8 million and $10 million of additional cost that we have included in revised guidance. The revised guidance implies a step up in earnings from third quarter results and yields a fourth quarter forecast that is largely unchanged from prior expectations. And I should note it includes absorbing the incremental VES staffing cost, I just mentioned. From a segment margin standpoint, the forecast for U.S. services sees modest improvement in the fourth quarter as compared to the third quarter, meaning the segment is expected to deliver in the 10% to 11% range for the full year. As a reminder, there are no redetermination activities assumed in fiscal year 2022. For the U.S. federal services segment, as a result of the VES anticipated staffing cost, the margin is expected to be at the low end of our expected range of 10% to 11%. Finally, the outside the U.S. segment will be in a loss position for the full year, with the fourth quarter margin expected to be just above breakeven. Our cash flow guidance is narrowed following the change to earnings with cash flows from operations expected to range between $220 million and $260 million and free cash flow between $170 million and $210 million. We expect interest expense to be about $42 million in fiscal year 2022. The effective income tax rate should be between 25.0% and 25.5% and weighted average shares should be between 61.8 million and 62.0 million absent further share purchases. Let me conclude by sharing some early thoughts around fiscal year 2023. From a revenue standpoint, our current line of sight suggests we could more than overcome the nearly $300 million year over year reduction in short-term COVID response work. That would mean a positive organic growth projection. From an earnings standpoint, we expect a lift in profitability from fiscal year 2022. Of course, these initial views of fiscal year 2023 assume some key factors, including the financial profile tied to resuming redeterminations following a PHE expiration and volumes materializing to our expectations in the VES business. These factors should help to offset the decline and meaningful bottom-line contribution from COVID response work, which as we operated those short-term programs longer delivered margins above the rest of the business. For the PHE, we currently believe it is unlikely that it will expire in mid-October. While exact timing of the PHE expiring remains unknown. We do know that this event and resulting resumption of redetermination will increase volumes in our core Medicaid program. We also know that states will have 14 months to complete their redetermination, the challenge is modeling how exactly that will affect our earnings through that period. On our last call, we talked about a $0.30 per quarter rough order of magnitude impact due to redetermination, which reflected the reduction of our earnings forecast as the PHE saw subsequent extension. We are often asked if this means we expect an immediate increase of $0.30 for each of the first four quarters after redeterminations resume. In short, it is unlikely to be that simple. So I'd like to spend a few minutes here taking you through our current thinking on how the earnings profile may unfold. Consider that this work will not have been completed for nearly three years, and we as well as our customers have never been faced with a pause and restart of redetermination. I'll highlight several factors as to why the potential earnings impact is complex, meaning there can be a wide degree of variability. First, redetermination don't typically have specific pay points, instead, we are often paid for units such as number of minutes on the phone or number of documents processed. Similar to how it took us time to isolate the redetermination effect when they paused. It's difficult to predict with certainty how total program volume will be tied to redeterminations when they resume. Second, some contracts have a tiered pricing structure, meaning various ranges of volume of work output can have different unit rates. Within a given range, profitability can vary. And finally, the volume impacts depend in part on decisions that some state customers have not yet made due to ongoing uncertainty as to the PHE and date and how they will elect to conduct the unwinding. We are discussing opportunities with current and potential customers. For this reason, our earnings expectation may continue to change between now and the eventual resumption. The shape of the curve is not yet known. So what does this all mean? Based on what we know today, we still expect this volume to be highly accretive, but potentially at slightly lower margins than in previous forecasts. We now believe $0.30 per quarter rough order of magnitude is possible. But I want caution that we now see that as the upper end of a range. We continue to refine our expectations and stress test the impact of different scenarios. Another factor for fiscal year 2023 earnings is our interest expense, which we expect to increase year-over-year as a result of higher rates. As we detailed in our SEC filings, $300 million of our debt is fixed rate through an interest rate derivative, and the remainder is floating rate. Based on today's forecast of rates, we could see the expense be in the range of $70 million to $80 million for next year. Consistent with our past practice, we will provide guidance for fiscal year 2023 in November. And with that, I'll turn the call over to Bruce.

Thank you, David, and good morning, everyone. I'd first like to thank those who attended our Investor Day on May 24, where we unveiled our refreshed three to five year strategic plan, and our segment leader shared details on how we will continue to drive our business forward. I shared the three strategic pillars that will define areas of focus and priority for Maximus, which are first, the future of health, that grows our clinical capabilities to meet rising demand for independent and conflict free health services by governments. Building on our success first in the U.K., and more recently in the U.S., including last year's acquisition of VES. We see significant market opportunity to continue expanding our clinical assessments business. Second is technology services, where we apply advanced technologies for it modernization, and will expand our ability to transform complex but aging government systems in support of our customers missions. And third, customer services digitally enabled. Think of this as the extension and expansion of our already successful digital transformation strategy. Making greater use of the data we collect through our operations and leveraging Intelligent Automation and cognitive computing, such as natural language processing. We will also bring to scale areas of proficiency, such as robotic process automation or RPA. So collectively, we improve the consumer experience while driving greater cost efficiencies in our operations. Taken together, these pillars significantly expand our addressable market, which I noted now stands at an estimated $150 billion in annual value growing in the mid-single digits, technology services and clinical and health services represent significant portions of that figure. From a segment standpoint, there is greater emphasis on the U.S. federal market, but all three segments have strong opportunities. Finally, I shared our underlying goals behind this next phase of the company, which are to support reliable mid-single digit organic growth, while enabling margin expansion to 10% to 14% excluding intangibles amortization. Bearing in mind the barriers to entry in certain core markets, our goal is to continue to leverage the conflict free status of Maximus on which many of our customers rely. As we embark on this next phase of our evolution. I look forward to providing updates on our progress along with key success measures. These include winning more work in our technology solutions business tied to modernizing legacy systems, with clients who know our brand, achieving key wins with new clients. And finally, continued investment in technology, strategic relationships, and most importantly, our people that will help us grow the business. In fact, we're already seeing positive proof points that provide early momentum to the strategic refresh. Let me mention a few. As an example of our work in the technology services pillar, we recently won additional work valued at $60 million total contract value or TCV. On the army unified ERP contract and are a partner on this program directly supporting customer requirements. Through this effort, Maximus serves as the lead integrator of the Army's logistics modernization program, the Army's core logistics Information Technology Initiative. This program is one of the world's largest fully integrated supply chain maintenance, repair and overhaul, planning, execution and financial management systems. Specifically, we are aligned to the type of work we want to do for digital modernization solutions, such as application development, and operations in cybersecurity. During his remarks, David mentioned that we plan to ramp up staffing in anticipation of higher volumes in the VES business driven by the PACT Act. The PACT Act expands certain conditions under which veterans would presumptively qualify for benefits and would result in increases in medical disability exam volumes. By ramping up our hiring now and making certain investments to retain our current employee base. We are demonstrating our ability to perform urgently and ensuring that veterans will be seen as soon as possible once their claims are filed. We look forward to working with our partners at the VA and the various veteran services organizations to support the estimated more than 3.5 million veterans that may be eligible for expanded presumptive benefits. Also, during the third quarter, we successfully hired more than 600 nurses, nurse practitioners and physician assistants necessary to commence assessment work in mid-May for a key state client. This is new work for us with the potential for expansion to other state Medicaid programs, and is yet another example of our ability to deliver complex programs with a clinical dimension at scale. Both the potential volumes related to the PACT Act, and new assessment work are examples that validate our commitment to the future of health as a strategic pillar, and continue to demonstrate our ability to act with urgency in response to the dynamic needs of our customers. Historically, our clinical capabilities in the U.S. were more limited, covering Medicare appeals, workers compensation, and limited areas of Medicaid. As part of our market strategies, we have expanded our capabilities to larger markets in Medicaid, and veterans' evaluations. By doing so, we're in a better position to pivot into further adjacent assessments markets. We are advantaged not only by our independence and ability to recruit, train and manage clinical skills at scale, but also by future opportunities for realizing greater efficiencies through technology and shared services. Our continued investment in recruitment and retention evidence is the new normal to which no business is immune, demanding more flexibility and in many cases, greater remote working opportunities. While touching on the challenges of the current labor market, I'd like to add some commentary to the OUS write down to which David spoke earlier. Over the past year, I've mentioned that there are certain skills that have become more difficult to attract and retain, particularly in today's environment, most notable and specific to our business, our clinical and technology experts. While I'm pleased with our success in hiring the clinicians I previously mentioned in a tough market, a contributing factor to the write down we face this quarter was higher than historical attrition among the technology team on the project, like many businesses were rapidly adjusting to the scarcity of certain technical skills. And the optionality that remote work offers for many. Let me share some news, which we're proud of that recognizes our efforts spent investing in the federal business, where we have sought to build scale, develop deep relationships and deliver complex programs of national priority. In Washington technologies top 100 U.S. federal contractors annual ranking by prime contract obligations, we broke into the top 20 and took number 19 for 2020 to up six positions from last year. As we focus on our refreshed strategic plan and make continued investments in the federal space, both organically and through acquisition, we seek to build on our efforts acknowledged by this award. In regards to the PHE, earlier, David noted that another extension has occurred, and the exact timing of the PHE unwinding remains unclear and of course, out of our control. Last quarter, I mentioned CMS has comprehensive guidance and resources available to states, meaning it remains only a question of when by our estimations. In the meantime, we're actively working with current and prospective clients to ensure we're well positioned to restart operations, once the PHE ends. I will now turn to award metrics and pipeline as of June 30. Signed awards in the quarter include a one-year extension of our CCO contract with CMS. The extension, which began on June 1 provides continued funding for the program. The CCO rebid remains under procurement, with a final announcement still expected in late summer. As a reminder from our second quarter discussion included in this quarters awards is our new contract to administer central and regional change center eligibility operations for the Indiana Family and Social Services Administration or FSSA. The contract has a four-year base period worth $425 million with the option for two one year renewals. In April, we were awarded a three-year extension through March 2025 For our Florida Healthy Kids contract, which has a total contract value of $64 million. Under this contract Maximus provides a variety of services, including eligibility and enrollment for the state's chip and Kid Care programs. For fiscal 2022 signed awards totaled $4.02 billion of TCP at June 30. Further at June 30, there were $476 million worth of contracts that had been awarded but not yet signed. As I noted these are strong bookings for us at this point in the year and virtually all are long-term in nature. Booked to build is a metric we now track, which is the ratio of our signed contract awards, new business and rebids, divided by our revenue in the same period. This number exceeding one means that our backlog is growing and is a good leading indicator of future organic growth. Over the past 12 months as of June 30, our book-to-bill was approximately 1.4x. Let's turn our attention to our pipeline of addressable sales opportunities. Our total contract value pipeline at June 30 was $32.5 billion, compared to $29.8 billion reported in the second quarter of fiscal 2022. The June 30 pipeline is comprised of approximately $7.3 billion in proposals pending, 3.6 billion in proposals in preparation, and 21.6 billion in opportunities tracking. Of our total pipeline of sales opportunities, 59% represents new work. Before closing, I have an important update following the outcome of our annual shareholders meeting in March, where shareholders voted in favor of a racial equity audit. We are making progress on this front. We recently engaged the law firm Wilmer Hale to assess our operations policies and public engagement through a racial equity lens. Wilmer Hale has significant experience conducting equity audits, culture reviews, and other assessments of civil rights issues for clients in several sectors. Maximus is committed to diversity, equity and inclusion. Creating a diverse, equitable and inclusive culture for all is not only the right thing to do, but it's also central to our mission of moving people forward, and our ability to positively impact the communities we serve. A report on the results of the racial equity audit will be published upon completion, which is expected to be in 2023. We find ourselves in an exciting period for the company, where old and new have successfully joined together to greatly improve our capabilities and potential. Internal planning behind the strategic refresh and new branding also included the establishment of new global core values, thereby uniting us to a common set of values that will guide our actions and behaviors. In a company-wide virtual event in July, we revealed the six values consisting of accountability, collaboration, compassion, customer focus, innovation and respect. These six values represent current beliefs, woven throughout everything we do at Maximus, and our aspirations for the future. While the remaining profitable COVID work is coming to an end, in the near future, we are seeing longer term tail winds for FY '23 and beyond in the form of solid wins and add on work. We have a strong and respected brand in the marketplace. At the federal level, we are increasing our impact on the modernization and transformation agendas of our customers. We are seeing not only a strong pipeline, but some early wins. At the state level, we're well positioned to respond to states as they determine the appropriate path to take when the PHE is lifted. And of course, we always look to augment our organic momentum with appropriately sized acquisitions that support long-term organic growth. And with that, we will open the line for Q&A. Operator?

Thank you. Mr. Francis, the floor is yours for the Q&A session.

Good morning, everyone. I see we have Charles Strauzer from CJS on. Let's go to his line, please.

Let's start off with the outside the U.S. for last provision that you recorded in the quarter. And can we get a little bit more color there in terms of, do you have your arms wrapped around the issue now? And do you think you have the staffing in place to kind of move the contract forward at the pace you're looking for?

Yes, absolutely, Charlie. David's going to start and then I'll add some color commentary at the end.

Yes, sure. So this contract is for an implementation of a software product and it is a fixed price contract. So as I mentioned in my prepared remarks, we recognize revenue on a percentage of completion basis. And while that is not a common arrangement for us, we do have experience with this platform having implemented it before. And by not common I mean that in other parts of our portfolio, we tend to see configuration of customer systems using either time and materials contracts or fixed price level of effort contracts. So in the quarter the loss resulted from ensure our forecasted costs increasing, which required us to book the loss in the period. Anything to add Bruce?

Yes. I underscore that this is a software product that we've owned for more than a decade. We've configured this successfully for other customers in the past. In this case, the project is for a larger customer with a more complex systems environment. And of course, it was undertaken during the pandemic, which was probably not optimal for either the customer or for us. But as I've mentioned, the tough labor market as a consequence contributed to the forecast reduction because the cycle times that it takes to find and train the resources that you need, as well as to replace underperforming resources have been elongated during this period. We're not pleased, obviously, with the recent challenges that we're facing. But I can assure you that we're applying experienced program management, including tenured technical leaders that understand the product, and have been with the company for some time. And we're focused on meeting our contractual obligations.

Great. That's helpful.

If you want to take further on that or like, yes, we'd like to move to another questioners, any further questions?

Yes. That's good and been very helpful. Thank you. If you could talk a little bit more about the potential exploration down the road of the PHE. David, you kind of frame the high-end of the range of -- you've had $0.30 per quarter being at higher end. Can you help me a frame what the range might look like in fiscal '23? And maybe more specifically, the lower end of that range? What that might look like?

Sure, yes, of course. So a rough order of magnitude, I'd say for the low end would be in the $0.15 range is I believe, we have a good line of sight to at least that level. It's worth pointing out I think, because we modelled different scenarios, the precise earnings impact actually depends on which month or which quarter the PHE ends and the redetermination volume must be considered in conjunction with what other volumes are already in the system and the corresponding staffing level. For example, at times, we may be able to carry existing staff to perform that work as it comes in. Whereas other times in the year it may require a greater restaffing effort. As I mentioned, we still expect this volume to be highly accretive but with all the moving parts on this code, there's a higher degree of variability that we do see potential for the margin to be slightly lower than in the previous forecast of a straight $0.30. I thought it may be also helpful to put this range into the context of the margin ranges that I provided last quarter and at the Investor Day. So for U.S. services, you'll recall I said we expect a range after the PHE ends of 11% to 14%. I still feel that this range is in the ballpark, the margins could fluctuate quarter-to-quarter for the reasons I've explained. And as a comparison, the U.S. services margin in the third quarter was 8%. So if you model a pickup of the equivalent of $0.15 per quarter at the low end, that would bring margins to maybe slightly under that 11% whereas $0.30 would bring the margin comfortably into that 11% to 14% range, in fact, even closer to the high-end. That helps?

Yes, very much. Thank you very much on that. And Bruce, maybe just shifting to kind of bigger picture with the PHE, the certainly doesn't seem to be much urgency coming out of Washington, in regards to letting the PHE expire, any thoughts there and with the midterms coming up, it seems like another extension seems likely here, but could they move even further down the road?

It's a good question, Charlie. And we hesitate to engage in political prognosticating. But I think you are reading as a tea leaves is likely accurate. I mean, the general consensus is that with up to 14 million or 15 million Americans potentially facing this enrollment through the redetermination process, the timing of this with regard to the midterm elections becomes a critical consideration. What we do know is that CMS has committed as you may recall, to giving governor's 60 days notice of the expiration of the PHE. And so that's a signal that everyone is watching for, since the current extension, as you noted, is set to expire in mid-October, we therefore look for that signal sometime in mid-August. So within really, almost 10 or 11 days from now. Also, I just wanted to maybe add a little color to why it's more challenging to forecast the impact of the unwinding than just kind of a binary event that leads to maybe a step function change in volumes kind of across the portfolio. So forgive me, as you know, my background and policy tends to make me want to explain these things a little bit more in a detailed fashion. So there's a difference between initiating a case action and completing that case action. So think of initiating a case action as reaching out for new information like an update on income or household composition or what have you. Completing the case action is either the continued enrollment of that individual or family or disenrollment. States have the flexibility to initiate case actions as early as two months before the end of the PHE. Hence the importance of the signal that I mentioned. Or they can have the flexibility to complete case actions, which is the enrollment event or disenrollment event as much as 14 months after the end of the PHE. So there was a broad time period here. And the point is that each state's going to do what they think is really best for their circumstances. So one thing that we can conclude is that when we see the signal or hear the signal, this work is going to spread out easily over the course of a year, depending on the priorities of the state. I hope that helps.

Very much. So thank you. And then, staying on the topic a little bit. There are pieces of the PHE that get funding like telehealth, et cetera, that potentially could be moved out of the cancellation, if you will, that can become a standalone items in another stimulus package.

I certainly hope that's the case. I, again, not in a position to comment on the politics of that, I will say we had the great fortune of being able to host Senator Mark Warner in our offices recently. And that is specifically a topic that he spoke to about the -- what we've really learned during the pandemic of the importance of telehealth and really its viability as a sustained kind of engagement in patient engagement and treatment modality and a way that, I think out coming out of the pandemic we ought to be adjusting our policy to and reimbursement policies to support telehealth going forward. So I know that that's something that's absolutely being talked about. And clearly, there's another dynamic at play here, which my understanding is incorporated in the legislation that's been developed between Senator Schumer and Mansion, and that is, how the subsidies that have supported individuals in the exchanges, the enhanced subsidies, if you will, during the pandemic can be sustained going forward to avoid significant likely increases in premiums that individuals could face in many instances as high as 50%. So there's a lot happening from a policy perspective that as those pieces fall into place, we'll create the environment that states will then have to navigate in terms of how they move individuals that may not be eligible any longer for Medicaid into some form of continuing coverage. In fact, some states have contemplated the idea of effectively, temporarily or presumptively moving individuals that are no longer qualifying for Medicaid into, if the state has a basic health plan, for example, which is usually an income threshold above Medicaid, but below the exchange, put them there, or maybe even into the exchange, and then go through the process of further determining, based on their eligibility, they're kind of long-term plan for coverage. So there's an awful lot on the table here and interrelated points, I guess, I'd say one final thing, and that is there have been individuals, certainly in the Congress that have talked about decoupling the Medicaid continued enrollment provision from the PHE, as well, and for any reasons that we've discussed previously, but fundamentally, because states want to ensure in many instances that people are getting the appropriate coverage that they qualify for their income and other factors. While we haven't seen that, incorporated in any potential legislation, since the original build back better act, we're familiar that that's something that's still being discussed in some circles. So I guess the final point would be stay tuned. Right, Charlie?

Sounds that way. Shifting back to the new awards and pipelines. You had a fair amount of signed contracts, 4 billion in the quarter. Is it safe to say that the CCO extension is the largest in that bucket? Or is there other contracts in there that you'd care to talk more about?

So, Charlie, yes, I think it's safe to say that that one-year extension that provides continued funding was likely the largest component, but I will say a close second was the Indiana project that we mentioned that moved from the awarded unsigned to the awarded signed category in the quarter. And I will anticipate maybe a follow up question and just as I indicated in my prepared remarks, note that the schedule for the award of the CCO lead bid contract remains late summer as we understand likely late August notification. So that's where that's in.

Great. And then, just touching on the pack bags. Any more context there you can provide in terms of the length of that potential contract and the types of uplift overtime on that as well as potentially the margin profile behind that?

Well, I'll tell you what we know at this point. Fundamentally, the passage of the PACT Act is not necessarily changing the contract that we currently provide these examinations under that contract remains as it was when we combined with the ES and acquired that business and we can provide you some further insights on as we go forward here on the end date of that current contract. But the point that we're focused on is that there will take -- there'll be a little bit of time between the anticipated signature of the PACT Act, and the beginning of the ramp up of the volumes, likely about 90 days. So we expect the volume initially there to be an initial surge of new claims, as the VA has been already beginning to talk about the importance of this new benefit for veterans. And you can imagine that very excellent veteran services organizations out there that work with veterans every day have been promoting the importance of veterans coming forward and filing these claims. So we expect there to be an initial surge, our current expectation is that we would start to see those volumes toward the end of the first quarter of fiscal year 2023. And indeed, we're already in the planning phase for this with the VA and the VSOs. And as they provided some guidance to veterans. The ongoing question of, what then is an important one, in our view, and I think, also supported by some of the modeling that's been done by the VA, we expect a sustained volume of claims related to the Act. And this is largely due to the fact that many veterans have not yet really manifested the onset of health conditions that the Act makes presumptive. So over time, these veterans as they age, there's an expectation that they'll encounter the onset and recognition of various health conditions that will lead them then to file claims. You'd asked about a little bit about the margin profile, I would just say, as in many of our businesses, volumes matter. And so our ability to have a significant network of clinicians to serve these veterans across all the regions, and as you know, there are districts or regions, if you will, the way this contract is structured, we don't expect any particular anomalies or volumetric differences across the regions, I think it's something where you're going to find veterans across the country that submit these claims. So we need to make sure our networks are in place to support those veterans and hence why, we are making a major investment, as David noted, of between $8 million and $10 million in this this fiscal year to first of all, ensure that we are retaining the current staff that we have, but also ramping up new staff in advance of the anticipated volumes. We think there are and this is a fairly well published figure up to about 3.5 million veterans that may qualify for new benefits under this Act. So it's -- in our view, a substantial lift to volumes and a sustained increase to the program over the longer term.

It's great. Thank you for taking all of my questions. I appreciate that.

Thank you, Charlie, we appreciate it.

Okay. We have one shareholder question here, Bruce and David, can you give a quick update on the labor market pressures?

Why don't James -- why don't I start with that, and I welcome David's further thoughts and comments on it. So that's that in my prepared remarks, the tightness that we're seeing in the labor market is particularly impacting our ability to attract and retain technical and certain political talent. In the OUS segment, again, as I mentioned, previously, we experienced higher than normal attrition on a complex technology project that was a contributing factor to the write down this quarter. Continuing to offer people more flexibility helps put us in a better position to attract and the right kind of talent for our business, certainly. But at the same time, we're realizing as we go forward, as I think many businesses are, that some work is just best done with teams working physically together. And I'll note that this is a discussion I've had with peers in the industry. And they're finding the same thing as we get kind of further into this quasi=post pandemic period. We're learning as others do. And I expect that the current allure of offering 100% work from home at very high salaries and unlimited vacation so forth for technology workers will inevitably adjust over time. So on the positive side, and likely while we've made very good progress with the clinical skills that I mentioned, during the call, we have a very strong brand. And if anything that was strengthened during the pandemic. We work hard every day to provide competitive compensation and benefits for our people. And then once they're here, we focus on additional training and skill development to give them what they need to continue their career here at Maximus. And I would probably conclude by noting that over time, higher wage rates affect all market participants, and they become reflected in the rebid and the new work that everyone is bidding on. In the meanwhile, for current contracts that are a fixed unit rate or performance based in our portfolio, we work very hard to offset labor cost pressures through greater use of technology. That said, I want to be clear that we also don't shy away from seeking equitable adjustments from our clients in cases where the market difference from the bid model to where we find ourselves today is particularly profound. So with that, I know I've covered a lot of ground David, I don’t know if have anything further you'd like to add.

Nothing else to add. Thanks.

Excellent. Well, that concludes the question-and-answer session today. Operator back to you.

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