Maximus, Inc.

Greetings, and welcome to the Maximus Third Quarter Fiscal Year 2021 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, James Francis, Senior Director of Investor Relations. Thank you, sir. You may begin.

Good morning, and thanks for joining us. With me today is Bruce Caswell, President and CEO, Rick Nadeau, CFO, and David Mutrin, Senior Vice President of Finance. 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 risks we face including those discussed in item 1A of our most recent forms, 10Q and 10K. We encourage you to review the information contained in our earnings press release today and our recent filings with the SEC, including our quarterly report to be released shortly. 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 quarterly earnings press release. And with that, I'll hand the call over to Rick.

Thank you, James. This morning, Maximus reported better than expected results, driven by overperformance of COVID response work, as Maximus works diligently to help governments respond to the worldwide health crisis. Revenue for the third quarter of fiscal year 2021 was $1.24 billion, and diluted earnings per share were $1.51. The company's operating margin was 11.2% for the quarter. Operating income margin is calculated after the expense for amortization of intangible assets, which increased significantly due to the two acquisitions. Excluding the amortization expense results in an operating margin of 12.2%. COVID response work contributed an estimated $460 million of revenue in the quarter, which was approximately $185 million higher than our projection for the third quarter. The profitability of this work has been steadily improving and now delivers operating income margins above our corporate average. The CDC vaccination hotline contract and, to a lesser extent, the other COVID response work are responsible for the overperformance in this third quarter. COVID response work has contributed $860 million of revenue on a year-to-date basis, and our full-year estimate is approximately $1 billion. This implies the beginning of the expected wind down of this work and a step down in the fourth quarter. It is worth noting our revenue estimate for COVID response work for the fourth quarter is relatively unchanged from our previous forecast. The estimated organic revenue growth for fiscal 2021 adjusted to exclude the census contract and COVID response work is 2.6%, assuming the midpoint of our new guidance range disclosed today. This is hampered by contraction due to the negative impact of the COVID-19 pandemic on some core programs. And while it is still early, the two acquisitions we completed during the fiscal year are both performing in line with our projections. The attained federal revenue for the three months ended June 30, 2021, was $56 million, which equates to approximately $224 million on an annualized basis. VES contributed $46 million of revenue beginning from the acquisition date of May 28, 2021, which equates to approximately $515 million of revenue on an annualized basis. Let me briefly touch on the balance sheet and cash flow items. At June 30, 2021, we had gross debt of $1.71 billion, and we had unrestricted cash and cash equivalents of $96.1 million. At June 30, 2021, our receivables were $1.13 billion, resulting from the inclusion of VES-acquired receivables and a substantial increase in revenue in the quarter. The DSO of 77 days includes VES on a pro forma basis and was skewed by the high level of revenue in June as compared to April and May. DSO was 75 days at December 31, 2020, and 70 at March 31, 2021, which included a team federal on a pro forma basis. Cash from operations of negative $33 million and free cash flow of negative $41.6 million for the three months ended June 30, 2021, were significantly impacted in the quarter due to this additional investment in working capital. Assuming the midpoint of our new revenue guidance range and assuming 72 days DSO, we expect the cash from operations to be in the range of $425 to $455 million for the full year. The fourth quarter should be a strong quarter for cash inflow. I would like to note that collections often occur towards the end of a month and slipping by only a few days can impact our cash flow forecast. Cash flows from investing activities report significant activity, including almost $1.8 billion of cash outflows for the two acquisitions. Cash flows from financing activities show the draw of $1.7 billion on our new credit facility in May. The credit facility is flexible and, at $2.1 billion in total, provides us an additional $400 million for liquidity and to fund smaller acquisitions. Completion of the new facility represents a milestone for the company and adds substantial capacity to enable larger transactions such as VES. It supports our strategy to be acquisitive for purposes of driving long-term organic growth, which we believe leads to creation of shareholder value. On June 1st, we announced completion of the VES acquisition, which follows the March 1st acquisition of Attain Federal. We view these acquisitions as major milestones for Maximus as they represent execution of our acquisitive strategy and puts the company in a favorable position to achieve our future organic growth goals. To demonstrate the positive impact of these acquisitions, today's press release includes pro forma income statements for the 12 months ended June 30, 2021. This pro forma assumes Attain Federal and VES had been acquired on July 1, 2020, and therefore included for a full 12 months in our operating results. The operating income and operating margin for the 12-month period, excluding amortization of intangible assets, was $591.3 million and 12.7% respectively for the combined company, inclusive of Attain Federal and VES. Both acquisitions blend up our gross profit margin and are accretive to our results from operations. While the acquisitions are positive, we continue to experience a drag on earnings from the impact of the health crisis on some of our core programs. As we have noted in previous quarters, we assume that the public health emergency will persist through the remainder of fiscal 2021, as signaled by the January 22nd letter from the then Secretary of the Department of Health and Human Services to U.S. governors. We continue to believe that it is not a matter of if, but rather a matter of when these core programs will return to a more normal state of operations. As for the remainder of fiscal 2021, our expectation for the full year is for revenue to range between $4.2 and $4.25 billion and for diluted earnings per share to range between $4.65 and $4.75. We expect cash from operations to range between $425 and $455 million and free cash flow between $375 million and $405 million for the fiscal year 2021. As I noted, we are seeing evidence of the COVID response work tapering off, and that is reflected in our guidance for fiscal year 2021. The midpoint of guidance implies an operating income margin of 9.8%. Operating income is after amortization of purchased intangibles. While finalization of the valuation of the acquired intangible assets is still pending, our best estimate for fiscal 2021 amortization expense is $44 million and reflects the increase due to the two acquisitions. The operating income margin excluding the amortization of purchased intangible assets implied by the guidance for the full fiscal year ending September 30, 2021 is 10.9%. The fourth quarter results for fiscal 2021 will be negatively impacted by the startup contracts outside the U.S., which are expected to have operating losses in the range of $13 to $15 million within the fourth quarter. Our effective income tax rate for the full year ended September 30, 2021, is expected to be between 25 and 25.5%. We expect interest expense to be approximately $14 million for fiscal 2021 and approximately $10 million in the fourth quarter. This interest expense reflects the successful financing that we completed on May 28, 2021. Due to the significance of the increase in the amortization, We have supplemented our reported results and fiscal 2021 guidance, which are in accordance with U.S. GAAP, with figures adjusted to exclude the amortization of purchased intangibles in the accompanying presentation to this call. We included a table showing diluted earnings per share, excluding the amortization of intangible assets for fiscal 2019, fiscal 2020, and the fiscal 2021 forecast, assuming the midpoint of guidance. The fiscal 21 diluted earnings per share guidance would be 53 cents higher, excluding the projected amortization of intangible assets. As the COVID response work begins its wind down, and now that the census contract is complete, it is worth reflecting on this shorter duration work. Both scopes of work created significant learning opportunities for us, as well as our gaining significant new customer relationships. including this year's projection, inception to date census, and COVID response work combined revenues are estimated to be approximately $2 billion. The cash realized from the census contract and the COVID response work was significant to our ability to acquire both Attain Federal and VES and still maintain a total debt to adjusted EBITDA ratio below 3 to 1. We believe that Maximus is a stronger company as a result of performing the census contract and the COVID response work. As we announced in January, I am planning to retire on November 30th, and David Mutrin will assume the CFO role on December 1st. I will now turn it over to David to discuss the segment results and make a few comments on fiscal 2022. Thanks, Rick.