Greetings, and welcome to the Maximus Fiscal 2022 Fourth Quarter and Year-End 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, Jessica Batt, Vice President of Investor Relations and ESG for Maximus. Thank you. Ms. Batt, 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, and good morning. We ended fiscal year 2022 on a high note, reflecting the growing momentum in our core business. Signed contract awards in the company were at an all-time high, which includes securing the CCO rebid totaling $6.6 billion, a record signing for Maximus. Our contract backlog also stands at an all-time high of $19.8 billion. The short-term COVID response work has concluded as anticipated, and the management team is energized and focused on executing our recently refreshed strategy. As noted in our press release, total company revenue for fiscal 2022 increased 8.9% to $4.63 billion. This is net of a decline in COVID response work of approximately $800 million compared to fiscal 2021. Adjusting for this normalized organic growth was approximately 18%, which came from new or expanded programs in all three segments. The other source of top line growth was full period contributions from the Attain Federal, Veterans Evaluation Services and Aidvantage acquisitions in the U.S. Federal segment. On the bottom line, the full fiscal year 2022 adjusted operating income margin was 9.0%, which, as a reminder, adds back only the intangibles amortization expense. Adjusted EPS again only adjusted for intangibles amortization was $4.37. Our earnings exceeded the high end of the guidance range we provided in August due to the combined benefits in the fourth quarter, totaling $28 million, or $0.33 per share. First, several contractual and legal items were resolved in the quarter. This resulted in a $17 million benefit, or $0.20 of earnings per share, and split roughly evenly between the U.S. services OI, the U.S. Federal Services OI, and the other line item which represents items that are not allocated to a particular segment. Second, there was an $11 million or $0.13 EPS one time gain on sale related to our…

Thank you, David and good morning, everyone. As David's remarks underscore while we continue to operate in an environment influenced by federal policy decisions, FY '22 affirms several fundamentals that investors have come to count on in our business model. These include, first, our ability to grow our core business through significant new contract wins. Second, the highly recurring nature of our revenue as evidenced by the great confidence our customers express through rebid awards. And third, our disciplined M&A strategy, through which we create the next platforms for organic growth, aligned with our refreshed 3 to 5 year strategy and catalyzed particularly by our acquisitions of attain and veterans evaluation services or VES. As we look ahead at FY '23, Maximus continues to be well positioned for organic growth, and to deliver on our near and midterm operating income margin commitments. While moving into a period of stability as we transition progressively out of a more volatile time. Our stability and reliability in an uncertain time is evidenced in our core business, where we operate long-term contracts for agencies with large budgets focused on citizen services. These contracts are largely either entitlement programs or essential government functions. Our portfolio of contracts has a weighted average life of eight years, and our new work win rate is strong. Our re compete win rate is more than 90%. Speaking first of the new work we secured as COVID work declined. Within U.S. services, we announced in Q2 a $425 million contract with the Indiana Family and Social Services Administration. I'm pleased to report that our project teams worked closely with the customer to seamlessly transition to program during Q4 from the incumbent to Maximus, experiencing minimal turnover in personnel, and no interruption to customer service. Transitions of this nature are complicated.…

Thank you. We will now begin the Q&A session and I'll turn it over to James Francis.

Good morning. Welcome to the Q&A session. We will first go to the line of Charlie Strauzer with CJS Securities. Charlie, do we have you?

Just starting off with David, if I could, just if you have the organic growth rates for Q4 by segments? That would be helpful.

Sure, yes. For the company, organic growth in Q4 was about 3%. That reflects overcoming COVID Work declining by nearly $200 million from the year ago quarter. So normalized for the COVID work decline, organic growth is about 25%. And that's strong in all three segments at over 50% in U.S. services, 13% in U.S. federal and 15% in outside the U.S. Those are all normalized for the COVID decline.

Got it. And David, maybe a little bit more color to on some of these the one time not benefits you saw on the quarter, the building scale, and if you talk a little bit more about what some of those benefits were?

Sure, and Charlie it's Bruce. I'm going to start and then turn it over to David. So the nature of some of these items precludes us from sharing too much detail, but let me give you some color on the contractual items that I mentioned and highlight that. For that one in particular we came to an agreement with a customer who I can't name them, essentially reflected are working with them to reach an equitable adjustment for a contract that was bid well prior to the pandemic. And so consequently, we were facing higher costs than had been in our BID model for labor. And it was a very difficult and unanticipated operating environment caused by the pandemic. I'm really pleased with that outcome. It's an example. As I said before, if are going and engaging with our customers, when we have a situation like that, where a contract needs to be adjusted, amended to reflect current, the current environment. We worked in partnership with them to negotiate that modification. And it better reflects the lessons learned from implementing the contract and also more current labor market realities. David, anything to add?

Yes, just for the contractual and legal items, the $0.20 of diluted EPS impact. I'll just clarify that the combined pickup of those in Q4 was a reversal of charges that were mostly incurred in prior periods. So while the benefit is outsized in the fourth quarter results, it is reflective of higher operating profitability on the affected contracts. And speaking to the $0.13 real estate transaction, I view that as more truly one time and more of a non-operating item, since our former headquarters is the only building that we owned.

And then just looking at your call for adjusted operating margins of 8.3% to 8.5%, this coming year. What needs to happen, obviously, aside from redeterminations, to get those numbers higher, going forward?

As you said, obviously, the PHE expiring in the redeterminations are the key component to meeting the committed margin ranges. And that would be the biggest piece. I will share as well and anticipation of our guidance, we had run a forecast scenario for the PHE ending in January. And for the post PHE period, we would still forecast adjusted OI margins in the ranges that we provided at Investor Day, for each segment and the nine to 12% range for the total company. Let me also point out on Slide 9 of the earnings presentation, there's a chart that crosswalk fiscal year '22 results to the midpoint of our fiscal year '23 guidance. And as we've been saying, the COVID work was at a higher-than-average margin. But at this point, it's behind us. And we do have a more direct line of sight to our profitability going forward. Then, just a few more thoughts as we committed at the May Investor Day, we do intend to improve our margins over time. And one component of that improvement is continuously refining our cost structure and carefully managing it as we grow revenue. We've been giving our cost structure, I'd say even more attention recently, given the pressures of inflation that I covered in my prepared remarks. I should also mention that our strategies to grow a higher mix of clinical and technology work, which can drive higher margins over time, we believe that support higher margins. And then we'll just one last indicator I'll point out is for our outside the U.S. segment, despite a difficult year, it finished profitable in the fourth quarter. And while we're not satisfied with the margin that it posted, and we have more work to do, it does give me confidence that we can deliver more stability in that segment.

And then, Bruce, can you just be tying back to your comments about the pipeline and the strategic refresh that you talked about at the Investor Day. Maybe some more granularity or insight as to what you're seeing in the business the green shoots from that?

Let's start back with the pipeline. As I mentioned in my prepared remarks. The pipeline as of September 30 was $30.7 billion. And I'm pleased that 74% of that represents new work. And within that 57% of the total pipeline is in the U.S. federal services segment. So very strong pipeline in federal services. Two areas where we're seeing a number of green shoots. I like that term. I'll pick it up from you. Our clinical assessments and technology solutions supporting IT modernization initiatives from federal agencies. So I'll start with the former. We're seeing opportunities across federal agencies beyond the VA, supporting areas such as fitness for duty exams and other areas related to occupational health for federal employees as an example. At the state level, we're also seeing more state Medicaid agencies bring together assessments related to Medicaid populations that have historically been done by multiple parties, and they bring them together into consolidated RFPs, which obviously are very attractive to us. Both of those types of areas of work and opportunity are well suited to Maximus through the prior acquisitions that we did, beginning with a send you a number of years ago in 2015, 2016, if I recall correctly, but then also, most recently, the veterans evaluation services acquisition. Regarding the latter area that I mentioned, which is technology solutions, supporting IT modernization, we are seeing continued budgeted resources in RFP development and procurements related to IT modernization initiatives across a number of federal civilian agencies, the one that's been in the press, probably the most, is the IRS. And that's been kind of most publicized in his numerous term. And while there are many vendors in this space, it is a crowded market, we feel that we're very well positioned from a reputation and capabilities…

Let me jump in quickly, if you don't mind to clarify 50% of the total 30.7 billion pipeline is in U.S. federal services. Yes, thank you, Charlie, back to you.

And just kind of like a couple of last minute, last smaller philosophical questions, in terms of the midterm elections now being over and the results being out there. What are your thoughts, Bruce on potential impact of benefit from that?

Well, it's interesting, Charlie. I'll say the first thing that I point out is we look at this in the context of well, does it mean anything to the PHE redeterminations, if PHE unwinding and the impact on redeterminations. And one of the things that I found quite interesting is, there's of course a lot of speculation. Will the PHE remain in place post January. We know, of course, that the federal government didn't provide 60 days notice of an ending but they've said it'll be in place at least through April. On the one hand, there's this kind of triple threat that folks are talking about with COVID and RSV, and seasonal influenza, which certainly creates arguments for keeping the PHE in place, at least through the winter months. But I'm speaking to the kind of the outcome of elections and kind of where, what's the sentiment of the legislative branch. We found it very interesting that the other day on Tuesday of last week, the Senate voted to end the public health emergency declaration $62.36. So certainly, bipartisan support, they're much more bipartisan than when the measure was last voted upon for it, and it was $48.47 along party lines. So while there's no indication that the measure is going to be brought up in the house, and the White House is promised a veto of it. I think gives you a sense of kind of the sentiment in at least in that part of the legislative branch. What it might mean, more broadly, at this point, we think it's going to be business as usual, as it relates to the major IT modernization initiatives that are underway? They will progress, as we've anticipated, they've generally enjoyed bipartisan support. And I think there is a recognition that there are antiquated and aging legacy systems out there that need to be brought up to speed. And it's less controversial, quite frankly, to talk about modernizing IT environments, and is necessarily to talk about hiring more agents to handle enforcement. The other thought I would have is just that, of course, the major programs that we operated you well know our entitlement programs and mission critical programs for government that generally have done well, even in environments where there may be gridlock legislatively between Capitol Hill and the White House. So presently, we're not forecasting any significant impacts from the Veterans.

At this time, no further questions, let me turn it back over to the operator.

Thank you, ladies and gentlemen, this concludes today's event. We thank you for your participation and interest in Maximus. You may disconnect your lines at this time and enjoy the rest of your day.