Greetings, and welcome to the MAXIMUS Fiscal 2024 Fourth Quarter and Year-End Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. 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 ESP 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. 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-Ks. We encourage you to review the information contained in our 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 identifying trends, gauging the quality of our financial performance, 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-Ks. And with that, I'll hand the call over to Bruce.

Thanks, Jessica, and good morning. With preparation for the incoming administration now underway, I would like to offer perspective on how MAXIMUS is favorably positioned for opportunity as well as areas we are watching with interest. As we've experienced through prior transitions in administrations, we are naturally at a point where there are more questions than answers, leading to speculation and uncertainty on topics from federal budget priorities to the likely role and impact of the proposed department of government efficiency. Our business has successfully operated for nearly half a century as a proven partner to governments across numerous political transitions, affecting both the executive and legislative branches at the federal and state level. Over the course of these transitions, we've developed the capacity to support our customers in implementing various policy priorities, from expanding social safety net programs to providing states greater flexibility in program delivery. Over the decades, the administrations we've served have seen the value in leveraging private sector partners like Maximus to provide high-quality, scalable, and cost-effective citizen services and to enable agencies to deliver on their mission through technology modernization. Our position as the largest partner to government in the administration of well-established entitlement and related mandatory spending programs has enabled us to deliver strong financial results with positive long-term trend lines spanning many administrations. Some of the largest mandatory spending programs we support, such as compensation and pension benefits for veterans, are perennially supported on a bipartisan basis. When we set our last strategic vision for the company, there was a deliberate focus on bipartisan priorities that are fundamental to the government's role in supporting its citizens. For example, with considerable government business still transacted on paper, the need for citizen services digitally enabled is undisputed. To date, only two percent of federal government…

Second,

through Maximus Forward, enterprise technology has contributed significant annual recurring savings and efficiencies, some of which have been reinvested. And finally, in FY 2024, we launched our Global Capability Center or GCC, a small acquisition of a long-time delivery partner. Our GCC is now part of how we solution deliver and innovate as a company. We view Maximus Forward as an ongoing transformation initiative driven out of my office that will continue to have us challenge established structures and processes, promote more efficient operations, and provide for reinvestment in the business to address priorities from talent acquisition and development to technology and innovation. Let me turn now to our award metrics and pipeline. Fiscal year 2024 signed awards totaled $2.2 billion of total contract value. Further, at September 30th, there were $312 million worth of contracts that had been awarded but not yet signed. These awards translate into a book to bill of approximately 0.4 times for the trailing twelve-month period. As we mentioned last quarter, the lower book to bill reflects a lower than normal period of rebid activity. And we anticipated that it would remain below one through the end of the fiscal year. For context, about half of our awards were new work, so only 0.2 times came from rebids. Despite a historically consistent rebid win rate of about ninety percent. If rebids were evenly distributed, a typical year would have nearly 1.0 times coming from rebids alone. As the volume of adjudications for both rebids and new work are expected to increase over the next twelve months and return to a more normal volume, given the circumstances as we know them today, we anticipate that our book to bill will return to 1.0. Our pipeline at September 30th was $54.3 billion compared to $44.1 billion reported…

Thanks, Bruce, and good morning. I'll take a moment to expand on the recap of fiscal year 2024, which I'm particularly proud of as we delivered on our commitments and had impressive performance across our portfolio of contracts. This time last year, expressed optimism from healthy tailwinds that could drive a strong year. Looking back, we exceeded those high expectations as we supported our government customers on important complex programs, some of which experienced unprecedented volumes across the year. Our landing spot for the year was organic revenue growth of 8.8 percent and adjusted earnings of $6.11 per share, just above the midpoint of the forecasted earnings range from the last call. A hallmark of our business model is cash flow generation, and this year delivered free cash flow just over $400 million. That's nearly eighty percent growth over the prior year and represents a 1.3 times conversion to net income which is exactly where we want the business to be. Meanwhile, we stayed on course with capital allocation priorities and maintained a disciplined approach with debt paydown. Finished this year at 1.4 times net leverage, which is almost a full turn of leverage reduction in a one-year period. The final item I'll highlight is that our official guidance for fiscal 2025 aligns with the early color we provided in August. The midpoint of $5.35 billion of revenue and $5.85 of adjusted EPS reflect underlying growth when you account for the excess volumes that we capture in fiscal year 2024. More on that later. Let's go to total company results. For the full fiscal year 2024, consolidated revenue increased 8.2 percent to $5.31 billion. As I mentioned, organic revenue growth was 8.8 percent, comfortably exceeding our longer-term target of sustainable mid-single-digit organic growth. The three primary pieces of growth were…

Thank you. The floor is now open for questions. CJS Securities. Please go ahead.

Hi. Good morning. Very well. Hope you're well, Bruce.

Good. Thank you. Bruce, maybe we could talk a little bit more about the CCO contract, just kind of get that out of the way. Maybe a bit more of a refresh there, as to, you know, anything moving beyond what we've already seen.

Sure. Well, let's see. As I mentioned in my prepared remarks, we are focused at the GAO level. Was upheld on one component, which was that the procurement needed to be clarified. And the clarifications that were issued to the procurement also updated the submission deadline for the Phase two proposals, also the intended notification of award date. So phase two proposals are still due before the end of November, and the administration the current administration indicated that they would not make an award announcement until March of 2025. Obviously, things have changed since then. We are under an option year that's been exercised that funds us entirely through this current fiscal year. And as I mentioned, you know, there's a lot to watch presently in terms of the new positions that are being announced, some as recently as just the last couple of days. So while they'll very likely be changes in priorities in the new administration at HHS, we're only recently learning about these new leadership positions and discerning, I think, with everybody else what that might mean. So coming back to the basics, we've, you know, continued to maintain, and as I mentioned, in my remarks, that we are very steadfast in our view the lack of the need for labor harmony agreement and therefore the procurement itself. We're like I said, operating under the third option period of the existing contract. So were that to continue, there are six additional option years that are left on that contract that could be exercised. I'd probably further note that under the prior Trump administration, they were very supportive of our program delivery model. The excellent independently measured performance that we're able to deliver. And it's worth also noting that together we were able to navigate obviously the significant continuity of operations challenge that was required to accommodate the pandemic. And that was probably the greatest, most extreme test of continuity of operations as I said in my, you know, in my prepared remarks, it's that fundamental basis of whether continuity of operations is adequate to sustain conditions like that and others, including labor actions. That has led the current administration to want to include the labor harmony agreement. So we feel like we've more than demonstrated the efficacy of that model. So to summarize, we are focused on continuing to provide excellent service to sixty-five million Americans, and we're gonna vigorously pursue our claim in the quarter of federal claims. And we'll support the new administration in their leadership transition as we have prior administrations. That's where things stand, Charlie.

Great. And that's a good segue looking at, you know, Trump 1.0 versus, you know, Trump 2.0. Maybe you could provide a little bit more color on how the company fared. I was finding, you know, the CCO on the last Trump administration and you know, how should we think about Trump 2.0 in comparison to the prior administration.

Yeah. I think that's the question that everybody in the Con sector is getting these days. So let me give you our perspective on it. And then a number of points of which quite frankly, I'll pick up from the prepared remarks in terms of the nature of the programs that we administer, the nature of our business model being focused on, if efficient delivery of government services. But let me, you know, kind of back up to Trump 1.0. So during Trump 1.0, there were delays in the appointments of individuals into key positions to make decisions on procurements. And as you'll recall, that slowed the procurement process down. Longer than it had historically taken during administration transitions. And would say that we don't expect that to be something that would repeat this time. This administration has a lot of experience. They've had a lot of time to put plans in place and get people into key positions, and I think we're seeing a lot of that already in terms of the tempo of the announcements that have been made. So, less likely in the second Trump administration to see that. Those delays. However, in any administration change, inevitably, certain procurements get slowed down. And whether you think about those in terms of, are they strategic priorities or not as the administration transitions, or are they just at a dollar value where the level of scrutiny and sign-off that's gonna be required then makes it even more dependent on having key positions filled, that's an open question. So we are, you know, we wanted to be prudent in our forecasting for FY 2025, and David can comment more on this as we get into more questions. And that's why only two percent of our revenue for FY 2025 really…

Great. Thanks, Patrick. I think that's sorry for the long answer there, Charlie. No. That's that's that's terrific, actually. I thank you thank you for you providing color there. And Sure. If maybe shifting to David for a second on the revenue guidance. And the margins implied. It looks like, you know, revenue guidance is in line with what other I was expecting. And but, you know, margins are slightly below not terribly, but just, you know, kind of some more color as to what's driving that. If you could you could

Sure. Yes. So I can't help but first talk about fiscal year 2024 margins, pointing out again that they benefited from those excess volumes in the U.S. Services segment, which were quite accretive. So let me let me help. Kind of size what that impact is which may help your understanding of where we landed for fiscal year 2025. So recall the midpoint of our guidance coming into fiscal year 2024 was $5.20. So we exceeded that by $0.91. And as we said on the last call a significant portion of that was driven by the temporary excess volumes that we don't expect to recur in our fiscal year 2025 forecast. Another helpful way I think about sizing it is on margin. And if you look back a year ago, our guidance going into fiscal year 2024 was for adjusted OI margin of 9.8 percent. So if you add in our depreciation, which is about 0.6 percent, that translates into guidance going into the year for an adjusted EBITDA margin of 10.4 percent. So we came in at 11.6 percent which demonstrates that the overperformance came in at a higher margin. If you look at Q4, which we say was free of those excess volumes, we were at 11 percent adjusted EBITDA margin which is consistent with our fiscal year 2025 guidance. So I think that kind of path from 10.4 percent to now 11 percent you get a sense that a portion of the end-year performance is temporary, but a significant portion is also durable. And carries forward into that 11 percent guide. So that kind of said another way looking at 2025, we're backfilling that higher margin revenue from last year with work that naturally comes in at more normal levels of

Great. And maybe we can segue into the backlog if we could. Maybe Bruce, Maybe provide us some more clarity on the differential versus last year and help us understand more about what needs to happen to improve book to bill. Just, you know, just help us clarify that a little more.

Great. So Charlie, I'm gonna ask David to start with the mechanics of the Vivek pieces in the backlog and then I'll provide some more color on the book to bill expectations as we go forward.

Sure. Yeah. So looking at the backlog, first, reduction naturally happens when we burn through revenue. So if you start with our backlog as of this time last year, remove $5.3 billion of fiscal year 2024 revenue that we booked. And then we partially backfilled that with $2.5 billion of signed and unsigned awards. As Bruce said, fiscal year 2024 had an unusually low level of rebid adjudication, which is not a bad thing. So in the case of this year, simply more backlog was burned than replenished through the new contract award. Of the remaining reduction to backlog, the largest driver was the portion of contracts for the VA medical disability examination contract that are currently going through a recompete due to the contractual. So the value attributable to the remaining life of those was removed from our backlog as of September 30. And now that outstanding two-year procurement is sitting in our pipeline specifically in opportunities pending. Then last, you may ask for CTO. In that case, the remaining option periods of our current contract remain in our reported backlog which follows our standard practice of including option periods unless we have a high degree of confidence that they would not be exercised. So those are the big moving pieces.

Yeah. So a little bit more color on the book to build dynamics. So first of all, you know, David's noted and I noted in my remarks that we had a relatively light year as it related to REBIT volume. We expect that to be shifting as we come into 2025. And then as you well know, there are some rebids that are out there right now that anticipate to be awarded in the near term, including the VA MDE contracts, which we would hope to hear on before the end of the calendar year. I am pleased that for the rebids that we did have this last year, we're right in the middle of fairway in terms of our historical rebid win rates. We've often said that we'd like to model our business and we intend our business to be to demonstrate a ninety percent, you know, plus or minus three bid win rate. And that's been the case over the last five years and continues which is great. We expect that the book to build, therefore, will trend more toward 1.0 as we get into FY 2025 and we see a more normal year for rebids. But also, you know, some of the procurements that have been in the pipeline and planned. We feel like we've got a very strong pipeline. We've built out and made investments in our market leads teams, the business development teams, the capture teams, and so forth. And a number of the procurements that we've been tracking have been progressing according to plan. And I would say, are probably less likely to be in a category where they're thought to be discretionary and maybe would slow down or different decisions made. These are, you know, again, we like to strategically focus on programs…

Great. That's very helpful. Thanks, Bruce. Just shifting back to the guidance. If we could talk about quarterly cadence, as we build out our models with, you know, fiscal 2025, you know, David, is there, you know, anything that we need to build into our thinking for from a cadence standpoint?

Sure. Not nothing too unusual. On the top line, we're fairly evenly distributed across the year with the exception seasonality does typically drive higher revenue one as is normal related to open enrollment activities. On the bottom line, our guidance, as I said, is an eleven percent EBITDA margin for the year. Looking across the year, we expect the first half of the year would be a little bit lower than that and the back half of the year a little bit higher than that. So taken together, that would show a trend of earnings growing from quarter to quarter over the fiscal year.

Got it. And same on segment basis too, which how should we think about that?

Yeah. Same on the segment basis. I mean, of the three segments, you know, US services, we pointed out, have the excess volume. So the top line on US services is expected to be down a little bit year over year as a result of that with the other two segments growing year over year.

Great. And then lastly on cash flow, you know, I mean, with, you know, $400 million of free cash flow, that's, you know, you're calling for a slight dip in that this year. You know, what are some of the things that are driving that?

Sure. So first, looking at fiscal year 2024, just dissecting the performance net income, DSOs, and CapEx were all pretty much in line with our expectations. So it's really other components of working capital that contributed to the overperformance which you can see if you look at our cash flow statement as a component. There's a lot of positive numbers in that section. So looking at fiscal year 2025, the guidance reflects number one lower earnings which fall to cash flow. Also, a portion of those other working capital benefits that helped fiscal year 2024 are forecasted to reverse. And then that's partially offset by a lower estimated CapEx. In 2025 versus 2024. So all that said the free cash flow to net income ratio which I cited in my prepared remarks, for fiscal year 2025, that the guidance comes in between 1.2 and 1.3 times. That's free cash flow and net income. So probably in line with our expectation.

Great. This has all been very helpful. Thank you very much for answering my questions.

You bet. Okay. Operator, back to you.

Thank you, ladies and gentlemen. This does conclude today's Q&A conference and today's event. We would like to thank you for your participation in Maximus' business call today. You may disconnect your lines or log off the webcast and enjoy the rest of your day.