Maximus, Inc.

Adjusted EPS, excluding intangibles amortization and divestiture-related charges, is now projected to be between $6 and $6.20 per share. This reflects a $0.35 raise from prior guidance and up $0.90 from our initial guidance in November. As a result of the improved earnings forecast, we are raising free cash flow guidance to between $350 and $380 million for fiscal 2024. This is an increase of $15 million at the midpoints and also reflects higher CapEx during the remainder of the year. The improved outlook implies organic growth of about 9% and an adjusted OI margin of approximately 11% on a full year basis. Also implied in the new guidance is a fourth quarter that looks more balanced and representative of the typical profile of the business, especially as compared to the extraordinary results this third quarter. The U.S. federal segment is expected to deliver adjusted OI margin of around 12.5% on a full year basis for fiscal 2024, which is also the expectation for the fourth quarter. Our view on the U.S. services segment is tracking in line with prior expectations. We still anticipate a segment margin of approximately 13% on a full year basis, meaning the fourth quarter should be in the 11 to 12% range. reflecting the completion of extra Medicaid related activities and over performance in the segment in early quarters. In the outside the U.S. segment, we still expect shaping efforts to occur this fiscal year and anticipate a slightly smaller footprint once completed. While not built into current guidance, we anticipate that such a transaction would result in divestiture related charges that would not impact our adjusted operating income. Meanwhile, we expect the segment to finish slightly above break-even for fiscal year 2024. Rounding out a few other assumptions for fiscal 2024 would be interest expense of approximately $80 million and intangibles amortization expense of approximately $90 million. I'll close by providing some early thoughts on next fiscal year and this precedes official fiscal 2025 guidance that we will provide on the year-end call in November. We always represent Maximus as a business that should grow organically in the mid-single digits over the longer term. The last two fiscal years have outpaced that, with 7% in fiscal 23 and 9% at the midpoint of our fiscal 24 guidance. Three consecutive quarterly earnings, beats, and guidance raises, two of which also increased revenue in a given fiscal year, is atypical for us. Bearing in mind this significant overperformance, Our early view is that fiscal 2025 revenue may look roughly similar to the new guidance for this year. This year has benefited from exceptionally strong volumes across many existing programs, some of which, as we have previously said, are likely to moderate, most notably those associated with redeterminations. A simple way to normalize fiscal 2024 would be to assume more than half of the total $175 million guidance raise on revenue across this year, which has been quite accretive, is attributable to overperformance that is not necessarily expected to recur next year. Then, off that normalized base, we anticipate organic growth that will roughly replace the revenue falling off. From a bottom line standpoint, the business continues to demonstrate stability and strength recognizing, however, that the moderation of the non-recurring revenue has an EPS growth and margin impact. There has been a total increase to guidance of about 90 cents per share across this year. Similar to revenue, a sizable portion of that would be attributable to overperformance that we don't expect to recur next year. However, we are confident that we could at least partially or perhaps entirely cover the earnings impact through continued performance optimization outside the U.S. improvement and lower interest expense. We're pleased to be tracking to our 10 to 14% long-term adjusted OI margin range, and while the 11% implied margin in our fiscal 2024 guidance is bolstered by the non-recurring work, we anticipate achieving at least 10% next year. Also of note, fiscal 2024 CapEx included a number of sizable investments in capitalized software. We expect CapEx to return to a more typical range of 1% to 1.5% of revenue for next year, which would enhance free cash flow. Again, this represents our early view, and we plan to provide formal guidance in November as usual. To conclude, we are very pleased with the operational and financial performance that the broader Maximus team has delivered in service to our customers and in many areas of national importance. We remain focused on driving shareholder value with sustainable mid-single-digit organic growth over the long term and disciplined capital allocation. With that, I'll hand the call over to Bruce.

Thanks, David, and good morning. We are pleased to have delivered another solid quarter, contributing to what we expect will be a strong fiscal year. High quality and efficient delivery of higher than expected volumes across the business reflect the benefits of our business model, enabling the positive financial results David has shared today. We continue to focus on executing the strategy outlined in our 2022 Investor Day. Recent awards demonstrate our continued delivery within our three strategic areas, future of health, technology modernization, and customer services digitally enabled. To that end, I'd like to share a few refined areas of focus we're excited about. Let's begin with recent wins. We recently announced the award of our first task order under the IRS Enterprise Development Operations Services, or EDOS, Blanket Purchase Agreement, or BPA. Under the task order, our teams will support the IRS Internal Management Division by designing and developing all functional and technical enhancements for the agency's internal operations and accounting program. Valued at $87 million over a five-year period, the award is evidence of our commitment to expanding our technology modernization services. We first announced our inclusion on the BPA last fiscal year and are pleased to be selected for one of the first few task orders awarded. The IRS has been a valuable client for several decades, and we are thrilled to have the opportunity to continue our strong, collaborative relationship while supporting the agency's modernization mission. Earlier this year, we were successful in winning new work with the Transportation Security Administration for Operations, Technology, Innovation, and Management, or TSA Optima for short, with an approximate total contract value of $171 million over six years. As has been reported in the trade press, an initial protest by the incumbent was resolved in our favor. A second protest was subsequently filed and is pending. While awaiting resolution, our teams remain excited to support the TSA in its mission. This award recognizes our high technical qualifications and illustrates the value proposition we often discuss on acquisition rationale, which is revenue synergies. Here, the value stems from our 2021 acquisition of the Attain federal business. Attain held the best technical qualifications to deliver the work, while Maximus was party to the relevant contract vehicle. Our combined teams leveraged the legacy strengths of each company in our proposal and we were successful in securing another strategic win to best serve the needs of the TSA. In our U.S. services segment, we were recently awarded the rebid of our independent enrollment broker contract in the Commonwealth of Pennsylvania. Under the new contract, valued at $263 million over five years, we'll deliver additional new scope that supports our customer services digitally enabled area of focus by supporting our contact center agents with technologies that should increase efficiencies in the enrollment process, providing a better experience for the consumer. Finally, to close the discussion on recent wins, I'm excited to announce a new seasonal contract with the Federal Emergency Management Agency, or FEMA, where we have a long history of staffing up quickly to support urgent needs of individuals around the country impacted by disasters. Under this contract, which has a total potential value of $75 million, Our team of nearly 700 skilled agents will be answering calls and accepting applications from those impacted by recently declared federal disasters, with a focus on supporting those affected by Hurricane Beryl in Texas. At a time when so many companies, Maximus included, are considering the potential impact of artificial intelligence in our operations, our work with FEMA is a general reminder that at the end of the day, connecting with a live agent to get the urgent and empathetic support needed is a priority of our government customers. We continue to be excited about the technology solutions we're developing and deploying under the leadership of our Chief Digital and Information Officer, Derek Pledger. Last quarter, I mentioned our Total Experience Management Solution, or TXM. At Maximus, we take pride in our history of implementing complex public policy with efficient technology-based solutions. The Contact Center as a Service, or CCAS, capability that TXM provides will be an added differentiator for Maximus as governments seek Single providers deliver secure, scalable, cloud-based solutions to serve employees and citizens. We are pleased with our growing pipeline of TXM opportunities in our federal services segment. We are also encouraged about the growing transition to modular solutions supporting the delivery of state Medicaid programs, an area we term Medicaid Enterprise Systems, or MES, in our U.S. services segment. Guided by CMS's Medicaid Information Technology Architecture, or MITA, Our MES solutions support the goal of best-in-class technology for specific Medicaid functions, reducing implementation risk and program disruptions while providing greater configurability. With a deep understanding of Medicaid systems and policy, we are well positioned to support our state clients as they make this transition. The industry move to MES further validates our strategic areas of both technology modernization and customer services digitally enabled. We expect this to be a positive contributor over the coming years. In the context of our future of health strategic pillar, we're pleased to see states acknowledging the benefits of bringing together assessment programs that have been historically disparate. We're working closely with our customers to consolidate assessment programs with the goal of a far better experience for the consumer and increased quality and efficiency for the state. We anticipate that much of our ongoing opportunity shaping will have top and bottom line impact in the medium term. Finally, in the U.S. services segment, we're seeing a greater number of states interested in establishing their own state-based exchanges. Given the timing and complexity of moving from the federal marketplace, we expect this pipeline dynamic will also contribute in the medium term. Let me turn now to our award metrics and pipeline. For the third quarter of fiscal year 2024, signed awards totaled $1.3 billion of total contract value. Further, at June 30th, there were $398 million worth of contracts that had been awarded but not yet signed. These awards translate into a book-to-bill of approximately 0.6 times for the trailing 12-month period, reflecting, in part, a lower-than-normal period of rebid activity. Our rebid win rates remain at historic levels, near 90%. We anticipate our book-to-bill to remain below 1 through the end of our fiscal year and expect to see it rise again as the volume of adjudications, both rebids and new work, is expected to increase over the next 12 months. Our pipeline at June 30 was $44.1 billion, compared to $37.8 billion reported in the second quarter of fiscal 2024. The June 30 pipeline is comprised of approximately $2.9 billion in proposals pending, $7.3 billion in proposals in preparation, and $33.8 billion in opportunities tracking. One explanation for the increased pipeline is the CMS Contact Center Operations, or CCO, contract, valued at $6.6 billion. As expected, the RFP was issued on May 16th, and in June we filed a pre-award protest with the Government Accountability Office. Based on processing times of the GAO, which can take up to 100 days, we expect to receive a response by September 30th. As I've mentioned the last several quarters, we have received top customer satisfaction scores and while we do not agree with the stated purpose of this unprecedented rebid, we remain focused on delivering services critical to tens of millions of seniors. We will simultaneously pursue all appropriate paths to achieve a fair resolution to this matter. The jump in our third quarter pipeline is also driven by the inclusion of our medical disability exams or MDE contracts with the Veterans Benefit Administration or VBA. As we shared last quarter, the agency will be rebidding these contracts due to exceeding the ceilings on claim volume in the current contracts. Of our total pipeline of sales opportunities, approximately 55% represents new work. Additionally, 62% of the $44.1 billion total pipeline is attributable to our US Federal Services segment. I would be remiss not to address the upcoming election in my prepared remarks. We have a demonstrated history of delivering strong financial results under both parties. In fact, while one party tends to support expanded public safety net programs for which Maximus is best known, the other has opened new markets for us and shown strong support for flexibility in state level program delivery. Given this spectrum, we are confident that our continued success will not be materially impacted by the results in November. Delivery on our three to five year strategic plan will continue to be our focus. Within an election year, we often find ourselves navigating many cross-currents, driven by changes in policies and administrations, making for a more dynamic management environment for our business and industry. Current examples include the CCO rebid, as well as the ever-changing policies and updates announced by Federal Student Aid, or FSA. As we enter this more dynamic period, I remain optimistic. Over the long run, a hallmark of the Maximus business model is our ability to navigate periods of volatility and view them as opportunities to demonstrate our capabilities to best serve citizens. In fact, we did just this during the COVID pandemic, when we pivoted to address immediate needs, capturing $1.7 billion of additional revenue. We'll continue to de-risk and sharpen our view forward as we move toward providing formal guidance in November. As I near the end of my remarks, I'd like to celebrate the recent recognition we received from Time Magazine, As part of its inaugural list, recognizing companies that are setting benchmarks in the U.S., Maximus was named one of America's best midsize companies. The award recognizes companies based on three elements, employee satisfaction, revenue growth, and transparency of sustainability efforts. This recognition from time underscores Maximus' role as a leader among America's midsize companies. Congratulations to the entire team at Maximus for achieving this milestone. In closing, I remain pleased with the progress we're making in many of the strategic areas of our business. Most notably, I continue to be impressed with the strong coordination between our enterprise technology and operations teams, who are collaborating in new and exciting ways tied directly to our top pipeline opportunities. As we strengthen relationships with current and new customers, we're helping to shape opportunities and provide technology capabilities that will underpin the delivery of government programs well into the future. While supporting the early successes I've mentioned today, the greater benefits of these efforts will ultimately be realized in the next 12 to 24 months. And with that, we'll open the line for Q&A. Operator?

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