Greetings, and welcome to the Maximus Fiscal 2023 First 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, Jessica Batt, Vice President of Investor Relations and ESG for Maximus. Thank you. Ms. Batt. You may begin.

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 are pleased to report solid first quarter results, as well as increased our revenue and earnings guidance for fiscal 2023. We have some important updates to share regarding Medicaid redeterminations that are now scheduled to commence later this fiscal year. First, I will discuss results for the quarter. Maximus reported revenue of $1.25 billion for the first quarter of fiscal year 2023, which represents 8.5% year over year growth. Organic growth was 10.3%, driven by new or expanded programs in all three segments. As we continue to see strong demand for our services across our markets. Adjusted operating income margin was 7.9% and adjusted EPS was $0.94 for the quarter. This compares to 9.0% and $1.12 respectively, for the prior year period, which included profitable short-term COVID response work in the domestic segments and less interest expense due to lower interest rates. Let's go to segment results. For the US federal services segment, revenue increased 6.2%, to $618 million, driven primarily by volume growth, tied to strong demand in the segments clinical services business and anticipated higher revenue on a large cost plus contract. The operating income margin for U.S. Federal Services in the first quarter was 8.3% as compared to 10.6% in the prior year period. Segment income results were in line with our expectation for a lighter quarter and our expectations for the full year are unchanged. For the U.S. services segment revenue increased 13.7% to $439 million. This was driven by contributions from new work wins across the portfolio in core business areas such as eligibility support, and clinical services that we have discussed on recent quarterly calls. The U.S. services operating income margin was 8.6% in the first quarter of fiscal 2023 reflecting the ongoing headwind to the segment's profitability…

Thank you, David, and good morning everyone. As David noted, a significant developments since our last call is the establishment of requirements and a specific timeline that states must follow for restarting annual redetermination of Medicaid eligibility. As a result, a number of our core programs, which have been operating with reduced volumes since the pandemic began are preparing for this major undertaking. In addition, demand in the broader Medicaid market has increased as all states must evaluate their entire populations for eligibility with only a few exceptions permitted. A brief background, signed into law by President Biden on December 29, 2022, the Consolidated Appropriations Act of 2023, also known as the Omnibus Spending Bill ends the temporary Medicaid continuous enrollment requirements of the families first coronavirus response act by decoupling it from the public health emergency or PHE, while also providing clear guidance on start and end dates for the unwinding process. While it was announced last week that the PHE is scheduled to end on May 11th of this year, the rules provided in the spending bill around redeterminations effectively superseded any reliance on the timing of the PHE. In terms of key unwinding dates. States were permitted to initiate the redetermination process as early as last week on February 1st, and must start by April of this year. With respect to this process, initiate means attempting to renew eligibility using pre-existing information on hand, including third-party data sources without contacting the individual. If a definitive determination of eligibility cannot be made, states will then notify beneficiaries who need to submit updated information in order to remain enrolled. These enrollments can be effective as early as April 1st, provided adequate notice is given to the enrollee. And then states must complete all renewals within 14 months from the…

Thank you. We will now be conducting a question-and-answer session. Now, I will now turn it over to James Francis, Investor Relations.

Thank you. Let's first go to the line of Charlie Strauzer with CJS Securities. Good morning, Charlie.

Good morning, James. How are you?

Great. Thank you. We got Bruce and David here.

Hi, Charlie. Good morning.

Good morning. A few questions on the redetermination restart here. As you think about the short term spike that you mentioned, how much of that is kind of incremental redetermination work and you can give us some additional context around that?

Happy to, and I'll begin and then ask David to add his thoughts as well. So interestingly, part of our core work for our Medicaid customers, as we've been saying it's performed these redeterminations. In historically they're done on an annual basis for the population that we serve. During the pandemic, the states halted those, as we've talked about, and in many just didn't take any action whatsoever. But it's important to note some States continued their redetermination process, but just didn't take any case actions. So in some cases, there are states that have more recent and fresh information on the population than others. As I mentioned, during my prepared remarks, states will begin the process by using third party data sources, or what the government calls ex-parte data sources, which allows them to make really the most least invasive, if you will determination of re-eligibility for the program. And if that data is insufficient then they have a period where they notice individuals and try to collect fresh information. So that's a little bit on the mechanics, the population. When we began the pandemic, we were at about 71 million Medicaid and CHIP beneficiaries that's gone up by about 20 million. There's a good Urban Institute report that talks about this, and Kaiser has always been has been released aid and CMS as well. So 91 million is kind of the conventional wisdom of the current total enrollment which may have increased a little bit in since that was reported in October of last year. So with those many adults that need to be redetermined for eligibility, there's a 14 month period, we anticipate there being a high watermark, as you've noted, in that the reason for that is, first of all, while there will generally be level…

Thanks, Bruce. Yeah, I can say that at least $0.15 per quarter is a reasonable floor for our expected earnings contribution after the unwinding phase. I do have to caution that it's difficult to be precise here, given that we haven't begun the work yet and experienced the actual volume flows. And also, point out that if we experienced volumes that bring us towards the high end of that $0.15 to $0.30 range or even beyond, there's more likely to be a component there that's temporary surge in nature that may decline after the 12 to 14 months. And then last point is just a reminder, these are not typically separate pay points in our contracts, they really just drive volumes of interaction that have until 2020 always been a part of our contracts that we consider in our pricing structure. So, this specific item is not something we'll be able to continuously quantify, but we've done our best here to estimate and disclose the impact of our core programs returning to a more normal level of volume.

Great, that's very helpful. Both you thank you very much for that. And then just turning to more on the margin side, do you need to ramp hiring to support the restart? And then follow-on to that would be what is kind of the state of wage inflation that you're experiencing -- that you have been experiencing prior and your ability to attract qualified candidates?

Sure thing. Starting with the margin. So, yes, there is some cost ramp up, which plays into our Q3 having a partial benefit and Q4 and more of a full run rate as we talked about. But we still do believe that this volume will be highly accretive, as we've been saying for many quarters now. And that really relates to the fact that the pricing structure is where many of our contracts is contemplated this level of volume, which has been missing for three years now. But stepping back with some margin commentary, the FY 2023 guidance implies an adjusted OI margin of 8.6% to 8.8%, which is a function of fiscal year 2023 having a partial period where we do not have the redetermination from the first half. Last May at Investor Day, we set adjusted OI margin range of 9% to 12% once redeterminations begin. Our forecast for Q4, which has the full period contribution does have a falling within that target range. And as we committed at the May Investor Day, we intend to improve our margins over time. One component of which is continuously refining our cost structure and carefully managing our costs as we grow. We've been giving that even more attention recently, as I noted last quarter. And I should also mention that our strategy is to grow a higher mix of clinical and technology work, which we think can drive higher margins over time as well.

And I'll jump in and give David a break and talk a little bit about the labor market and ask him to add anything he'd like. I've really been pleased, Charlie to see how the market has improved, since we really last had the opportunity to report on it. And we've seen some positive trends related to voluntary attrition rates that are declining across our business, really across all three segments. And we're pleased, for example, even outside the US where we're able to attract and retain clinicians on our flagship [Indiscernible] contract in the United Kingdom and get closer to the overall staffing levels that we've been seeking to achieve there. Furthermore, of course, there's been a real trend, as you're well aware in the tech industry, toward at least the temporary layoffs across a number of the major tech services companies. And I think the Gov Con community has really been benefiting from that we offer opportunities for stable employment and productive mission oriented work for a lot of individuals. And I think they're taking advantage of that. If you couple that with in many instances, the ability to work remotely, we found that to be a very attractive arrangement for candidates. So we -- one of the metrics we always look at is how many positions do we have in our technology services business that you -- but for having a candidate could be built out tomorrow. And that number has been steadily declining. In fact, just this week, we held a tech fair, a tech hiring fair here at our headquarters in Tysons which was very, very well attended. And there was quite a buzz in the building that day. So I'm feeling really good about that. The other comment I would add is that our customers are certainly understanding of the wage pressures that we've faced, and I said on a prior call, that we would not hesitate to go to customers well in advance of rebids of our contracts to discuss adjustments to accommodate rising wages in the marketplace. And we have done just that. And, and we've been met with I will say, more sympathetic and understanding, environment than I might have previously anticipated. So we've been able to make some progress in there in that area. And then lastly, as the portfolio gets rebid, right, that's the natural opportunity to reset and we level prices in the market. And we've continued to win and grow organically in that environment, which I think it's a good illustration of the market rates being higher than they were a few years ago. One of the things we've said around here is, you know, the $13 is now $18 in many cases, right, in some of these contracts, or more, and that's evidence that the market can bear those higher rates. So that's, that's our view on labor. I think the conditions have generally been improving.

Great. And then just -- one final question of me looking at the – your US segment, I know are you focusing still on the kind of low end of the margin range there. Is that largely because of the new work you've just won in the Gulf region, or is it just more just related to absorbing some expenses as you've ramped contracts? A – Bruce Caswell: Yes, I can take that. It's not necessarily related to the new win, Q1 came in at 5%, which is right in the middle of that range, it did have a small benefit from a contractual change, which brought it a little bit higher than the full year estimate. We're still targeting, as you said, the low end of that 3% to 7% range. But I'll say, again, that we're not satisfied at the low end of that range. And we're working hard. And we're committed to improving the margin in the segment. The segment was very volatile during the COVID period. And so it does seem to have stabilized, which is great albeit in the low single digit margin. So now we're focused on improving that margin up to the mid single digits and then high single digit.

Great, Thank you very much. A – Bruce Caswell: Thanks, Charlie.

At this time, we have no further questions. Operator, back to you.

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