Maximus, Inc.

Greetings and welcome to the Maximus Fiscal 2024 Fourth Quarter and Year-End Earnings Conference Call. At this time, all participants are on 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, Jessica Batt, Vice President of Investor Relations and EFT for Maximus. Thank you, Ms. Bett. Please go ahead.

Good morning, and thanks for joining us. With me today is Bruce Caswell, President and CEO, David Mutren, 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 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 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, 10Q and 10K. 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're 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 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 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 2% of federal government forms have been digitized. Notably, the digital experience law signed under the first Trump administration progressed to implementation guidance under the Biden administration. The priority of supporting our veterans with medical disability examinations through the compensation and pension claim process expanded under the PACT Act with bipartisan support that continues. States seeking to more effectively manage Medicaid budgets have and are likely to continue to rely on partners like Maximus to provide independent and conflict-free assessments for beneficiaries enrolling in long-term services and supports. Technology modernization remains a long-term spending priority for civilian, defense, and health agencies, not only for the productivity efficiencies it can deliver, but as a strategic imperative in response to an ever more complex cybersecurity and geopolitical landscape that exposes the weaknesses of antiquated systems and processes. Looking ahead, the fundamental obligations of government to support its citizens will not change, but it's prudent to consider how the means by which programs are delivered may continue to evolve. For example, through pandemic-era legislation, the prior Trump administration granted states greater flexibility to work with private sector partners in the administration of certain benefit programs. Whether accomplished through legislation, executive order, waiver authority, or rulemaking, Maximus has decades of experience guiding our customers through changes that can impact eligible populations and program delivery models. Our ability to translate policy priorities into technology-enabled operations implemented and scaled with agility and designed to deliver quality services and value for money remains a hallmark of our business. Our role administering programs that support more than 100 million Americans, including veterans, senior citizens, student loan borrowers, and individuals with disabilities positions us uniquely to identify opportunities with our customers and the incoming administration to advance the bipartisan goals of improved customer service and effective program delivery to eligible populations. So while this interim period of transition has naturally created uncertainty, what we do know is that Maximus is an established, reliable, and trusted partner to governments on both sides of the aisle. We are well prepared to advise, adapt, and implement any changes that may affect our current programs and, perhaps more importantly, to partner in the effective implementation of new priorities as they become known. Just a year ago, I similarly talked about this being an unprecedented era using words like volatility and ambiguity to describe the global environment we anticipated for fiscal year 24. At that time, despite the global uncertainties, we were confident in our ability to return to stability and more normalized operations. As David will share, our teams exceeded our forecasts through solid execution across the segments while benefiting from strong volumes in certain programs. We continue to deliver on our three to five year strategy and meet or exceed our targets. Highlights from FY24 include organic revenue growth of 9% and record adjusted earnings per share of $6.11 per share. Our team's dedication to and focus on our strategic goals have been instrumental in these achievements. Throughout FY24, we prioritized both top-line growth, refining our approach to new work and project expansion, and bottom-line efficiency through various cost reduction and optimization initiatives. We plan to continue these priorities this fiscal year as our investments in business development, innovation, enterprise technology, and performance management drive pipeline conversion and greater operating leverage to set up FY26 and beyond. While David will share our formal guidance for FY25, I'm particularly proud that we're forecasting to achieve a 5% revenue compound annual growth rate over a three-year period, consistent with our goal of mid-single-digit organic growth. With that, let's look at some of our recent wins that will contribute to top line growth. In FY24, we successfully secured two task orders under the IRS Enterprise Development Operations Services, or EDOS, blanket purchase agreement. Combined, the task orders contribute total contract value of $128 million and represent two of the six task orders awarded to date. These victories are key milestones in our strategic focus on technology modernization and underscore our role with the IRS as one of their trusted partners. Within our federal segment, we recently secured the rebate of our California Independent Medical Review Project, valued at $120 million total contract value over a base three-year period. Since 2013, we've supported the Department of Industrial Relations Division of Workers' Compensation by providing independent medical reviews. This program serves as a cornerstone for our future of health strategic pillar and showcases the long-term customer relationships that are a key element of our business model. We are thrilled to share that Maximus has secured a recent victory, collaborating with an agency within the Department of Defense to enhance its artificial intelligence capabilities. This initial contract, along with the expected follow-on contract, is particularly notable as it introduces us to a new client and reflects a new contracting model for Maximus that enables customer-driven R&D. In a crowded market with many companies offering strategic advisory services on AI, we believe our selection acknowledges the practical capabilities that we've built and the credibility of our subject matter experts in this area. We look forward to supporting this DoD customer in their AI roadmap and to expanding these services to other defense and civilian agencies. Our latest victories not only showcase our ongoing success in executing on the pillars of our three to five year strategy, but also highlight our capability to enter new agencies and expand into related markets. Turning to the bottom line, I'm excited to share an update on our Maximus Forward program. In FY24, our enterprise technology organization undertook significant change. We welcomed Derek Pledger as our Chief Digital and Information Officer, or CDIO, and with him Mike Raker as our Chief Technology Officer. Under their leadership, the Office of the CDIO has sharpened service delivery and execution, deepened our capacity to identify, shape, and respond to customer needs, and positioned Maximus to drive greater innovation in our operations and solution offerings. Three highlights that illustrate these accomplishments include, first, working with our federal market leads, our CDIO team has mapped more than 90% of the known requirements in our near-term pipeline to our capability sets, which we call mission threads. We've concurrently identified certain accelerators, like AIML, that we believe will further differentiate our ability to deliver on mission threads and contribute to improved win rates. Second, through Maximus Forward, enterprise technology has contributed significant annual recurring savings and efficiencies, some of which have been reinvested. And finally, in FY24, we launched our Global Capability Center, or GCC, through a small acquisition of a longtime delivery partner. Our GCC is now part of how we solution, deliver, and innovate as a company. We view Maximus Ford 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 pipelines. For fiscal year 2024, signed awards total $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 12-month period. As we mentioned last quarter, the lower book to bill reflects a lower than normal period of rebate activity. and we anticipated that it would remain below 1 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 90%. 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 12 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 in the third quarter of fiscal 2024. The September 30th pipeline is comprised of approximately $4.2 billion in proposals pending, $7.1 billion in proposals in preparation, and $42.9 billion in opportunities tracking. Of our total pipeline of sales opportunities, approximately 48% represents new work. Additionally, 68% of the $54.3 billion total pipeline is attributable to our U.S. Federal Services segment. As a reminder, the increased pipeline is largely driven by the CMS Contact Center Operations or CCO contract, valued at $6.6 billion. Our commitment to challenging the basis for and legality of the CCO solicitation remains unchanged. Last month, after receiving a partially sustained ruling from our GAO protest, we filed suit in the U.S. Court of Federal Claims or COFC. Concurrently, we sought and received a stay of award from the government until March 15th, 2025 to facilitate judicial review and allow the court to render its decision before that date. While the COFC case is pending, we acknowledge the recently announced planned changes in key roles within the administration. We remain steadfast in our view that the labor harmony agreement requirements in the solicitation are unnecessary, inappropriate, and illegal. As a reminder, the justification provided for the rebid was the potential risk of a service interruption due to labor actions and inadequate continuity of operations plans. I'll note that recently our ability to maintain operations without disruption was soundly demonstrated when successive hurricanes devastated much of the southeast. Many employees in the region faced challenges, and Maximus responded by safeguarding their pay while temporarily suspending operations directly in the storm's paths. With certain contact centers closed to protect our employees and their families, their colleagues across the country stepped up to the challenge, many working unscheduled overtime. Service remained uninterrupted with the CCO team handling over 190,000 calls without any impact on call wait times. Finally, also included in our pipeline are both the two-year rebid of most regions under the VA medical disability exams or MDE contracts. as well as the expected procurement for the successor contracts for all regions of this work. The VA recently executed the next option year for our current contracts for all regions, and we expect to receive results of the two-year rebid before calendar year end. As we enter a new fiscal year, I remain confident in our position and optimistic about the growth of the company. We've spent much of the last few years focusing on our strategic plan, working to ensure we have the right resources in place, in making investments in technologies and capabilities that help to ensure we are well positioned not only to protect our base, but win new work for current and new customers. We're quickly approaching the primary milestone of our three to five year strategic plan and have several quarters behind us where we've demonstrated our ability to deliver on the targets we set out. I'm very proud of the team at Maximus for their passion, focus, and exceptional work in driving our strategy forward. Thanks to their commitment, we're firmly on track to building a successful and dynamic Maximus for the future. And with that, I'll turn the call over to David.