Maximus, Inc. (NYSE: NYSE:MMS) reported robust second-quarter results, leading to an upward revision of its fiscal 2024 guidance. The company announced an 11.7% year-over-year increase in revenue, reaching $1.35 billion, with significant growth in the U.S. Federal Services segment. Adjusted operating income and adjusted EPS forecasts were also raised, reflecting strong performance and strategic initiatives. Maximus highlighted recent contract wins, including a $70 million BPA with the Department of Energy and a task order on the OPM Customer Support Center BPA. The company's focus on IT modernization and technology solutions, coupled with its commitment to operational efficiency, is expected to drive margin improvements and contribute to future growth.
Key Takeaways
- Maximus reported a revenue of $1.35 billion in Q2, an 11.7% increase from the previous year.
- The U.S. Federal Services segment saw a 20.1% revenue increase, while the U.S. Services segment grew by 8.1%.
- Revenue from services outside the U.S. decreased by 7.2%.
- Free cash flow guidance for fiscal 2024 has been raised, with net debt-to-EBITDA ratio improving to 1.7x.
- The company's long-term target debt ratio remains between 2x to 3x.
- A $70 million BPA was awarded by the Department of Energy, along with a task order from the OPM.
- The book-to-bill ratio stands at approximately 1.1 times, with a pipeline valued at $37.8 billion as of March 31st.
Company Outlook
- Guidance for revenue, adjusted operating income, and adjusted EPS for fiscal 2024 has been raised.
- The company aims to improve margins through standardization and operational efficiency with targets in the 10% to 14% range.
- Investments in technology and business development are expected to impact Q3 and Q4 performance positively.
Bearish Highlights
- The Outside the US segment experienced a 7.2% decline in revenue.
- Concerns were raised about the impact of the CCO recompete on small disadvantaged businesses and the risk of service failure to seniors.
Bullish Highlights
- The company is optimistic about maintaining scale and volumes in the VA recompete.
- Maximus remains confident in meeting its margin improvement targets.
- There is a strong focus on employee well-being and recognition as a leader in veteran employment.
Misses
- No significant misses were discussed in the earnings call.
Q&A Highlights
- The company anticipates maintaining scale and volumes in the VA recompete and sees elevated volumes continuing.
- There is a focus on technology solutions and IT modernization initiatives to support future growth.
- Any potential bidding on the CCO recompete will be contingent on the terms aligning with the company's strategy.
In summary, Maximus has demonstrated a strong financial performance in the second quarter and is strategically positioning itself for continued growth through a focus on technology, operational efficiency, and capturing new business opportunities.
InvestingPro Insights
Maximus, Inc. (NYSE: MMS) has shown a commendable performance in its recent earnings report, and the InvestingPro platform provides additional insights that may be of interest to investors considering this stock.
InvestingPro Data highlights a solid financial standing for Maximus, with a market capitalization of $5.11 billion and a Price/Earnings (P/E) ratio of 21.8, indicating investor confidence in the company's earnings potential. The revenue growth over the last twelve months as of Q1 2024 stood at 5.35%, which aligns with the company's reported increase in revenue and suggests a steady upward trajectory. Furthermore, the company's gross profit margin for the same period was 21.75%, reflecting its ability to maintain profitability amidst operational costs.
InvestingPro Tips offer additional reasons to consider Maximus as a potential investment. The company has maintained dividend payments for 20 consecutive years, demonstrating a commitment to returning value to shareholders. Moreover, analysts predict that the company will be profitable this year, which is backed by the company being profitable over the last twelve months. This consistent performance may be particularly appealing to investors looking for stable returns.
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In summary, the data and tips from InvestingPro suggest that Maximus is in a strong financial position with potential for continued growth and profitability, which could be valuable information for investors following the company's positive earnings report.
Full transcript - Maximus Inc (MMS) Q2 2024:
Operator: Greetings and welcome to the Maximus Fiscal 2024 Second Quarter 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. [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.
Jessica Batt: 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 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 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 believe, it may be informative to investors engaging 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.
David Mutryn: Thanks Jessica and good morning. Our second quarter results were exceptionally strong, driving the second consecutive raise to our fiscal 2024 guidance. Demand remains high across our programs, which elevated volumes this quarter and perhaps more importantly, is indicative of stability returning following the disruptive years of the pandemic. We are also acutely focused on cost management, which had a positive impact to this quarter and has added potential to further improve our bottom-line in future periods. Turning to results, Maximus reported revenue of $1.35 billion for the second quarter of fiscal year 2024, which represents 11.7% year- over-year growth or 12.6% on an organic basis. Similar to last quarter growth was driven by expanded programs in the U.S. Federal Services segment and a combination of resumed and expanded programs in the U.S. Services segment. Adjusted operating income margin was 11.1% and adjusted EPS was $1.57 for the quarter which compares to 7.2% and $0.81 respectively for the prior year period. By our estimations, we set a high mark for earnings this quarter with the strength coming from no single area, but rather across our portfolio of domestic work. A portion of the over-delivery in the quarter came from extra volumes in U.S. Services tied to Medicaid redetermination. Let's go to the segment. For the U.S. Federal Services segment, revenue increased 20.1% to $702 million, which was all organic and driven by volume growth on expanded programs including the VA Medical Disability Examination or MDE contracts. The operating income margin for U.S. Federal Services in the second quarter was 11.9% as compared to 8.2% in the prior year period. The segment margin this quarter was slightly better than expected thanks to our MDE contracts exceeding their production goals and continuing to execute well in an environment with high demand for assessment. For the U.S. Services segment, revenue increased 8.1% to $486 million also all organic. A portion of the growth stemmed from resumed Medicaid redetermination activities which weren't present last year. The segment also has a large state-based assessment program which has ramped in previous periods and contributed to growth on a comparative basis. The U.S. Services operating income margin was 14.0% in the second quarter of this year. The prior year period's margin of 9.5% was before redetermination activities resumed. It's worth noting that this quarter's margin of 14.0% is likely the high watermark for the segment, at least in the near-term, bearing in mind our longer term target margin for this segment is 11% to 14%. As I mentioned earlier, a portion of this segment's overperformance came from extra volumes tied to the restart of Medicaid redetermination, which is a process that has been playing out over the last several quarters. We continue to forecast light segment margin normalization after the second quarter, as the relatively limited amount of extra volumes conclude, meaning landing closer to the middle of that 11% to 14% margin range for the back half of the year. That said, the outlook is slightly improved for the back half as well and driven by improvement to other core areas of the business. Compared to this time last year, we are quite pleased that the segment is reflecting stabilized operations after being heavily disrupted during the pandemic. And in the case of Medicaid redetermination which has occupied the spotlight recently they should go back to quietly running in the background. Turning to the outside the US segment. Revenue decreased 7.2% year-over-year to $161 million for the quarter. Most of the decline was attributable to less revenue following completed divestitures to date, while the rest of the segment was flat on an organic basis. The segment made a small profit of $0.7 million, as compared to an operating loss of $3.7 million in the prior year period. Our commitment to reshape this segment is in progress and we remain on target this fiscal year. In the meantime, recent results demonstrate reduced volatility to the employment services portion of the segment, now that the pandemic is behind us and we expect this trend to continue. Let's now turn to cash flow and balance sheet items. Cash provided by operating activities for the second quarter of this year was $130 million and free cash flow was $105 million. DSO finished the quarter at 62 days. Our free cash flow guidance for the rest of the year has increased due to the improved earnings forecast. We ended the second quarter with total debt of $1.22 billion and our net debt-to-EBITDA ratio improved from 2.1x to 1.7x. As a reminder this ratio is our debt net of allowed cash to adjusted EBITDA for the last 12 months as calculated in accordance with our credit agreement. Our long-term target debt ratio remains 2x to 3x. However, in the current interest rate environment, our bias is toward the lower end of that range. We are now below that range and are comfortable in the near term continuing to pay down to build capacity for future M&A while also maintaining an opportunistic share repurchase program. On that front, post quarter end in the month of April we repurchased nearly $20 million worth of shares. Turning to fiscal year 2024. We are pleased to be raising guidance for the second time with increases to both the top and bottom line guide. Revenue is now expected to be between $5.15 billion and $5.25 billion which is up $75 million at the midpoint compared to the previous guide. Adjusted operating income is estimated to be between $540 million and $560 million, which is an increase of more than $34 million from prior guidance using the midpoint. Adjusted EPS excluding intangibles amortization and divestiture-related charges is now projected to be between $5.65 and $5.85 per share. Using the midpoint, this reflects a $0.40 raise from prior guidance and up $0.55 from our initial guidance in November. As a result of the improved earnings forecast, we are raising free cash flow guidance to between $330 million and $370 million for fiscal 2024. The improved outlook reflects higher expectations for both organic revenue growth and margin. At the guidance midpoint, organic growth is projected to be nearly 7%, up from 5% in prior guidance and adjusted OI margin is 10.6% up from 10.0% in prior guidance. Let me add some color on earnings in the back half of the year. We expect higher earnings in our fiscal third quarter compared to the fourth quarter due to a combination of factors in our US Federal and US Services segment. First, we are planning on some investment costs in the US Federal segment in the fourth quarter, which will begin driving further operational efficiency in fiscal year 2025. On a full year basis, the Federal segment margin should be approximately 12%. Second, for the US Services segment as mentioned earlier, we expect this segment's margin to be more in the middle of the 11% to 14% target range for the back half of the year, as volumes related to Medicaid redeterminations continue to moderate. And given the strong first half, the segment margin should be approximately 13% on a full year basis. The Outside the US segment remains on track to be slightly above breakeven for the full year, assuming status quo for the current footprint. We do expect further shaping of the segment to occur this fiscal year in an effort to deliver consistent profitability. A few other assumptions for fiscal 2024 include interest expense of approximately $77 million and intangibles amortization expense of approximately $89 million. To conclude, I would like to congratulate the entire Maximus team on executing another terrific quarter and reaffirming my comments on prior calls that the business is healthy with the ability to build momentum from previous quarters. The domestic segments both hit the upper ends of their long-term margin targets this quarter demonstrating the business has the earnings power that we have long signaled. Work remains on the Outside the US segment and we have been clear that action in the remaining half of the year is a management priority. While we have been quite successful in navigating a period of higher rebid activity, there are two contracts that have some unique circumstances that Bruce will discuss further and do not change our positive view of the business nor disrupt the momentum we have built. Finally our balance sheet is very strong as our debt ratio now sits below our long-term target range. This provides us flexibility and capacity to execute on our capital allocation priorities. With that I'll hand the call over to Bruce.
Bruce Caswell: Thanks, David and good morning. As David presented, we have just completed a very strong quarter. Revenue grew 12.6% on an organic basis. Adjusted EPS was $1.57, up from $0.81 for the prior year period. Adjusted operating margin continues to meet our target range of 10% to 14% with updated guidance now implying a 10.6% margin for full fiscal year 2024. And finally, we're increasing guidance for the remainder of the fiscal year. This is a notable accomplishment for the company as a whole, following our solid first quarter. Congratulations to our program teams and our critical support functions, all of whom remained focused on quality delivery and are committed to meeting the needs of our clients. For the last several quarters, the company's top line revenue growth has been driven by expansion on current programs. This is not new for us. Building solid customer relationships through quality delivery has reliably enabled our teams to increase volumes and expand scope, ultimately benefiting our top and bottom lines. This quarter in particular we continue to see increased volumes in our VES business, where as David mentioned MDE claims exceeded their production goals. Growing current programs including movement into near adjacencies is fundamental to the Maximus business model. That said, we're also keenly focused on new work wins which underpin our long-term growth goals. In this win and in the context of our Maximus Forward initiative, we are making investments in our business development, capture and proposal teams and their supporting tools to help ensure their success. Across all segments, we have made a number of key hires. These leaders come to us with years of experience and proven capabilities. More specifically, as part of a reorganization within our US Federal capture and proposal teams, our leaders are now aligned to the market areas and agencies where they bring the most expertise. This alignment allows heightened focus on the customer enabling us to build better relationships and gain a deeper understanding of our clients' needs. We are seeing early success with some of the investments made thus far. Shortly after the quarter closed, we were awarded a few contracts that align well with our strategy. We were awarded a $70 million single-award BPA with the Department of Energy or DOE, Office of Intelligence and Counterintelligence, providing specialized software application development, technical advisory and consulting services. Our support sits at the core of a crucial mission within the DOE enterprise at a pivotal moment for the agency. Security of our nation's critical infrastructure is an imperative and Maximus will provide support at the nexus of DOE headquarters, the National Labs and the broader intelligence community. Also in April, we were awarded our first task order on the OPM Customer Support Center or CSC BPA valued at nearly $21 million over three years including option periods. This win launches our support for OPM's expanded mission to provide benefits enrollment services for certain Federal agencies beginning with US Postal Service employees. Under the task order, we will be building out a modern cloud-based contact center platform and delivering customer support services, delivering both staffed operations and innovative technology, the OPM CSC task order takes full advantage of our recently announced Maximus, Total Experience Management or TXM solution. The TXM solution supports our customer services, digitally enabled strategy pillar. The goal of which, is to elevate customer experience to achieve higher levels of satisfaction, performance and outcomes through Intelligent Automation and Cognitive Computing. TXM implements our strategy, by helping federal agencies deliver trusted information and government services simply, consistently and securely. This solution seamlessly integrates people, experience, data insights and secure technologies into one digitally powered platform to reimagine government service delivery seamlessly across phone, text, and chat channels. While on the topic of new wins, let me turn to our award metrics and pipeline. For the second quarter of fiscal 2024, signed awards totaled $568 million of total contract value. Further, at March 31st there were $797 million worth of contracts, that had been awarded but not yet signed. These awards translate into a book-to-bill of approximately 1.1 times, for the trailing 12-month period. Our pipeline at March 31st was $37.8 billion, compared to $37.7 billion reported in the first quarter of fiscal 2024. The March 31st pipeline is comprised of approximately $1.31 billion in proposals pending, $987 million in proposals in preparation and $35.5 billion in opportunities tracking. Of our total pipeline of sales opportunities, approximately 75% represents new work. Additionally, 56% of the $37.8 billion total pipeline is attributable to our U.S. Federal Services segment. Our pipeline figures are reported as of March 31st. As a result they do not include two important re-bids that we were tracking, but on which we have greater clarity today. The first is our Contact Center Operations Contract with the Centers for Medicare and Medicaid Services which we discussed at length last quarter. CMS has recently reported that the RFP is expected to be released, on or around May 16. As a reminder CMS is recompeting the program earlier than expected with the expressed purpose of including a Labor Harmony Agreement requirement. While we and other industry stakeholders have respectfully communicated our disagreement with this decision we of course remain committed to our customer and the citizens we serve as this matter runs its course. We have and will continue to provide best-in-class customer service to CMS, and the tens of millions of Americans we interact with each and every day, most of whom are senior citizens. As I mentioned on our first quarter call, since assuming operational responsibility for the CCO contract, we have consistently met or exceeded all contractual service levels with uninterrupted operations, leading to the highest independently measured customer satisfaction in the history of the program, while accommodating occasional labor organizing events which we have unequivocally respected. The second point I will make pertains to our Medical Disability Exams contracts, with the Veterans Benefit Administration or VBA. Several of these contracts will also be up for rebid, later this year. The early rebid is required because the contracts in place include a ceiling on the claims volume. As we have communicated volumes have increased significantly, since the passing of the PACT Act. Therefore the VBA must re-compete some but not all of the contracted regions in which we work. We remain optimistic about the outcome given our strong relationship with the VBA, demonstrated delivery capabilities and are continuing to invest in our operations. Our ability to deliver high-quality exams at scale in a complex programmatic and operational environment, positions us well to remain a committed partner to the customer and the veterans we are fortunate to serve. Returning to the success of the quarter, David shared that our adjusted operating income margin forecast, is a healthy 60 basis point improvement for the full year. That's attributable in part to the strong second quarter results where adjusted margin was 11.1%. Some of this success is driven by the Maximus Forward initiatives, I've mentioned on recent earnings calls. Fundamentally, this effort is a structured evaluation of the design, processes and resources that drive our delivery. We've taken a hard look at both client-facing programs and our corporate functions asking tough questions, promoting innovative ideas and making hard but necessary decisions. Example initiatives we've shared with you include the AI Agent Assist and AI training pilots presented last quarter, currently in progress and showing promising results. The hiring of our Chief Digital and Information Officer or CDIO was an early decision driven by Maximus Forward. Under the leadership of Derrick Pledger, the department is on its way to becoming a technology-based and data-driven organization, designed to accelerate delivery of business outcomes, enhanced customer experiences and technology differentiation to drive competitive advantage. Since joining, Derrick has completed a comprehensive review, covering a lot of ground in a short amount of time and developed a plan aligned with our expanded vision for technology at Maximus. He is aligning technical solutions to enterprise strategy and business needs, including key pipeline opportunities. We are prioritizing investments in research and development activities that can provide greater operating leverage and working with our operations to develop cutting-edge technologies ahead of our customer needs. As part of the changes implemented, Derrick has added a Chief Technology Officer to his team. Our CTO will lead our technology and innovation organization and will be vital for setting and executing our strategic technology direction. Within the CDIO organization and also driven by the Maximus Forward program, we have recently invested in our supply chain through acquisition of one of our critical IT suppliers, which is expected to be accretive post integration. The group has been a long-term contributor to the success on our US Services programs bringing extensive engineering and research talent to enable greater depth, scale and capabilities in administering large critical government programs. We are excited to bring their team in-house and leverage their capabilities across our portfolio. While the success of the Maximus Forward program is driving shareholder value, it's also allowing us to continue investing in our people. Enhancements to our employee value proposition are driven by employee feedback and the continued effort to be market competitive in the compensation and benefits we provide and a long-term employer of choice. Our driving force is to provide for the physical, mental and financial well-being of our employees and their families. Over the past few years, our focus on our employee value proposition has led to significant enhancements to our benefits programs. Examples include increasing the employer contribution and reducing deductibles on all HSA plans, launching a PPO plan and adding free telehealth options, all in the face of a macro backdrop of rising health care costs. As we look ahead at our 2025 benefits plan, we are excited to continue enhancing our offerings. The return on investments made in our people is clear when analyzing our recent independently conducted global employee engagement survey results. The KPI, I find most meaningful is the employee Net Promoter Score, which measures employee loyalty to the company. Fiscal year 2024 survey results showed an overall Net Promoter Score of plus 31. This is an 11-point increase from the fiscal year 2023 results and a 26-point increase from three years ago when we first asked PwC to conduct this annual survey. Maximus has created a positive employee experience by fostering a culture of listening, feedback, transparency and accountability. I'm very grateful to everyone involved in driving such impactful change throughout our organization. As I wrap my prepared remarks, I'd like to take a moment to highlight our continued recognition as a leader in veteran employment. Maximus has once again been honored as a VETS Indexes 5 Star Employer, marking the third consecutive year we've been recognized for our commitment to veterans and military connected individuals. This year we were also proudly named a top veteran employer by Military.com. These accolades underscore our dedication to recruiting, hiring, retaining, developing and supporting military personnel and their families. Our initiatives celebrate the unique skills and experiences that veterans bring to our organization, reflecting our deep rooted respect for military service as a core part of our identity and mission in public service for nearly five decades. In closing, we continue to be pleased with our fiscal year 2024 performance thus far and remain optimistic about the growth of the company, through expansion in our core business as well as a heightened focus on investment in new work opportunities. And with that, we'll open the line for Q&A. Operator?
Operator: Thank you. The floor is now open for questions. [Operator Instructions] Today's first question is coming from Charlie Strauzer of CJS Securities. Please go ahead.
Charlie Strauzer: Hi, good morning. Good morning, Charlie. Just a quick question. Yes, obviously, a very robust quarter especially in Federal. Sales and margins kind of seeing some good uplift, kind of ahead of schedule versus your prior guidance. Just when you look at that in the drivers, did you see any revenue pull forward? Maybe give us a little more color behind the drivers of that quarter?
David Mutryn: Sure, great. This is David. Good morning, Charlie. So as I mentioned there was no real single area that led to the Q2 over performance. It was a broad strong performance across the portfolio. The VA MDE volumes in the Federal segment were certainly a component that were particularly strong in the quarter. I did allude to some benefit from extra volumes tied to the Medicaid unwind effort, which ends soon, though it remains difficult to precisely quantify that. But I would leave you with the impression that this was only some of the Q2 overdelivery. While I more broadly about the topic of redeterminations and sharing what we see today, Medicaid enrollments are landing a little higher. And as we expected, we are seeing continued engagement from the portion who have been redetermined and retained on the Medicaid role. So that effectively means, it's back to business as usual for us for the work tied to the annual Medicaid renewals. And the normal base of beneficiaries that existed pre-pandemic is engaging in typical fashion in the post-pandemic environment, which is good since that drives activities in our operations. Lastly, the fact that they're slightly higher population doesn't hurt either. And while got the mic as I reflect on the quarter, I'll offer one last thing that I'm especially proud as reflecting on the quarter for the team delivering on the financial commitments that we laid out, back two years ago to the month in May of 2022 at our Investor Day. So we had said sustainable mid-single-digit organic growth, and we delivered 7% in fiscal year 2023, and now guiding to near 7% this year. US Services in particular, which was in the midst of the public health emergency, we guided 11% to 14% margin. Once the redeterminations resumed, we just posted 14% in a peak quarter and guiding to the middle of that range going forward. US Federal operating at the high end of their 10% to 12% guidance, we gave. And then for the total company, we guided 9% to 12% adjusted OI margin. Our guidance for this year, is now just above the midpoint of that. And now we're really focused on moving up further in the longer- term range that we gave of 10% to 14%. Then last week, we've also met our commitment to delever in the near term having to cross below the 2 to 3 times target. So a lot of milestones that we're proud of, and much credit to the team here for delivering on these commitments.
Q – Charlie Strauzer: Great. Thank you for that. And just some housekeeping on the guidance. You talked about Q3 being stronger than Q4 in the back half. Any sense of the cadence from Q2 to Q3 that we should factor in?
David Mutryn: Sure. Well, yes, a couple of things. I mentioned in my remarks that we have some planned investments in the fourth quarter. So first, I'll talk about kind of Q3 to Q4 and why we -- a little more color on why we guided Q3 being higher than Q4. So, a component of those investments, are the start of expensing on some new internal capitalized software efforts. I've shared before on prior calls, that we have increased investments in technology particularly in the Federal business that will provide enhanced efficiency especially, in highly scaled areas of the business. So in this area in particular, the fourth quarter is expected to be a transition period where we've been prudent in anticipating some duplicative costs. So in fiscal year 2025, we expect the legacy cost to sunset, while the savings and the return on those investments would continue forward. So all that means, is the fourth quarter is more of the outlier in our view that may be a bit below the core run rate, which would be manifested in the US Federal Services margin. We are also forecasting some moderation in US Services volume, both from Q2 to Q3 and then also a little bit more from Q3 to Q4. So that's a piece of the Q2 to Q3. So looking forward from Q4, our continued efforts that Bruce mentioned in his prepared remarks, including the Maximus Forward initiative that we described, do give us confidence that there's more opportunity for continued margin improvement beyond fiscal year 2024, which would mean continuing to move up in that range that I just quoted, the longer-term range of 10% to 14% adjusted OI margin. And then of course, outside the US, our continued work shaping and improving the profitability there should also support further improvement.
Q – Charlie Strauzer: Great. Thank you.
Operator: Thank you. The next question is coming from Bert Subin of Stifel. Please go ahead.
Bert Subin: Hey good morning Bruce and David. Maybe I'll start on the VA side. So I mean like if we look -- go back last year, I thought that was going to be a tailwind with PACT Act and anything that's played out more so than anyone could have anticipated. And if we look at where current inventories are and sort of where the burn rate is, changes but would indicate somewhere in the 1.5 to 2.5 years of sort of continued excess demand, I guess as you think about the recompete what do you think changes? One of your competitors said they think that will wrap up by September. I'm curious if you think that's the case. Does that become -- does that drive pressure to your margins in the business? Is it an opportunity to get more share? And I guess, do you agree with the runway sort of laid out potential sort of the runway for MDEs to be strong for a longer period of time?
Bruce Caswell: Bert, David is going to take this one and I may add a little color commentary at the end.
David Mutryn: Great. Yes a few things about the pending rebid. As Bruce mentioned in his remarks, the way we view it this is a required action by the government which is more procedural in nature due to hitting the ceiling on those claims volume. So really the result of some good news with the volume growth. Not only do we anticipate continuing to work uninterrupted until the process is complete, but we're still making investments to increase capacity in an effort to drive high-quality and ongoing improvements to the veterans experience. The key really for us and any provider is the ability to operate at scale. This is a large program. Our experience tells us it's complex with an extensive nationwide network of clinicians. And while we'll be appropriately paranoid in the recompete process as always, we do anticipate being able to maintain scale and volumes given significant operational advantages and experience that we believe we possess. Therefore, we would agree with your assertion about the volumes remaining elevated for the foreseeable future as evidenced by the inventory as you said that we think it will takes some time for that to return to kind of normal levels. Based on the time line for the rebate, we've seen thus far, we also agree with what you said that the new contracts would essentially align with the start of our next fiscal year so around September 30th time frame. So worth pointing out no impact on our fiscal year '24 expected. And as far as the financial details, I think at this point we can't really speculate what may or may not change as a result of those.
Bruce Caswell: I would agree with that Bert. In fact I'd only add one thing in that David mentioned we're making significant investments in internal use software to further streamline processes and build capacity in that business. So we feel that those investments. And when they will come online and be productive for us overlap well with this reprocurement process. And so that in total as we exit this fiscal year and go into the next fiscal year we should be in a solid position in terms of capacity to handle the volumes in the newly completed program.
Bert Subin: Got it. Very helpful. Thank you. I guess maybe following on to that like if we think about some of the outperformances here MDEs have definitely helped redeterminations returning and the peak activity have helped, can you maybe just give us or frame for us what's your expectation for like the next leg of growth is? It sounds like MDEs will continue to contribute to growth and profit. Redeterminations I guess there's some opportunity perhaps to pick up states and just a higher population count we'll keep that steady. But you're operating sort of on the higher end of mid-single digits almost in the high single-digit organic growth range and your margins have been pretty strong. I'm just trying to get a feeling for sort of your confidence for that to continue as some of those tailwinds at some point start to moderate.
Bruce Caswell: Sure, Bert. I'll take that. So, I would say - look first of all we continue to be very focused on executing on the three pillars of the strategy that we laid out back in May of 2022. And the one that I focus on right now is the technology solutions or technology modernization initiatives. Clearly an area that's had a lot of focus and attention is the IRS EDAS contract. And that contract in our view is really just getting started in terms -- and so still very much in the early stages. It's been noted that the original award has been awarded one award funded at a funded value of about $35 million and that's the highest award thus far. So we feel like we're still early days on EDAS and that there remain excellent opportunities and we remain very bullish on our ability to be recognized as a valuable partner in providing solutions to the IRS through that vehicle. At the same time, it's probably worth broadening the aperture and just speaking for a moment about IT modernization more generally in the Federal environment. And I noted in my prepared remarks that we're very pleased to have been awarded the BPA with the Department of Energy, which includes specialized software, application development technology consulting services. And as I take that and kind of look at the broader pipeline that we see out there, we do see a strong pipeline of new work opportunities that really align well with the technology-focused competencies of the organization that are really a combination of the two combinations we did or acquisitions we did going back to 2015 with the Acentia business and then the Attain Federal business in 2021. Those competencies and they're in high demand presently are digital modernization cyber, hybrid cloud and infrastructure, AI and advanced analytics and data management because you can't do AI well without having the data in order and then low-code/no-code solutions. So we continue to build out our competencies in those five areas. And I would say you got to make sure of course that the demand signal aligns with that. So I'd go back to some comments I made on the last quarter call that spoke to our confidence in the customer demand that we're seeing for longer-term IT modernization initiatives. So like EDAS we think those will continue particularly for agencies that have been thoughtful and have planned out their procurements many of which are already in process. To give you an example, many businesses in the industry are tracking an anticipated BPA from the Department of Energy that has a $10 billion ceiling on it that's expected to go into the procurement process later this year. And that would span any potential change in the political setting in Washington. So to summarize, we feel that this area of IT modernization technology services particularly the competencies that I mentioned represent an excellent organic growth vector for the company as we move forward. But at the same time, we remain focused -- and I think this is one of the company's greatest competencies in combining technology with business process services to deliver programs at scale. And more and more these days the RFPs that we see do show a flavor or a combination of those where you need to deliver for example a cloud-based technology solution that meets Federal certification requirements which themselves are changing with CMMC coming along, but also combined with the labor component to meet the mission requirements of the procuring agency. So we feel strongly that those two areas really when taken together represent a solid underpinning for the growth targets that we've laid out for the business. And I think David is going to add something to that.
David Mutryn: Yes. And Bert just further on your margin question at the risk of being repetitive, we do intend to continue to drive margin improvement up in that 10% to 14% range with what I mentioned before is kind of it continued focus on standardization and operational efficiency through the Maximus Forward program as well of course with our ongoing efforts with the Outside the U.S. portfolio.
Bert Subin: Great. Just one last one for me. Can you give us a -- you highlighted the VAMD recompete and the CCO recompete. I guess just maybe like a two-part clarification. On the CCO would you still be interested in bidding that if the terms change significantly? Like what's the time line on that in your view? And then are there other recompetes to be aware of? Or is your profile pretty thin otherwise?
Bruce Caswell: I'll go ahead and address the first piece the CCO rebid. And I don't want to offer too many comments as it relates to strategy here obviously because it's an active procurement process. When you really look at the context of the reprocurement and consider that as I outlined in my prepared remarks it's interesting, but not entirely surprising that we're seeing continued action by the government here. I noted that there was communication posted last week suggesting an RFP date on or around May 16 and that the procurement would cover a contract for a transition period plus nine option years. It's important to note that no further details are provided including any specifics related to the planned labor harmony agreement requirement, which we understand is really the sole basis for triggering this premature rebid of a successfully performing contract. Also as I mentioned on the last call the procurement of this size typically take up to a year or more to complete and it's not uncommon for the process to take up to three years. So we'll note that there's a strong likelihood that an RFP could trigger a pre-award protest to the GAO and potentially further given the unprecedented nature of the anticipated labor harmony requirement. It's also important to note here that further complicating the path forward is that there are significant operational impacts that would need to be accommodated and considered under resulting new contracts including slowdown requirements to significant small business subcontractors who may be in our view least equipped to comply. So it begins to get complicated when you kind of take theory and put it into practice. I mentioned in my prepared remarks that we remain very committed to continued high-quality services. While the rebid matter plays out. And -- but we do have genuine concerns regarding the impact of the rebid on the ecosystem of small disadvantaged businesses that have been put together to support this program. And in many communities they're the primary employer. So the theory behind the labor harmony agreement is to ensure continuity of operations. And yet we've repeatedly noted our record of service continuity. And indeed our view of the evidence suggests that any reprocurement only increases the risk of service failure to tens of millions of seniors. So in summary while the RP -- when the RFP is released we'll evaluate it comprehensively, we'll determine our appropriate course of action at that point in time giving due consideration to all of our available options. So at this point I'd probably stay away from speculating further on the competitive environment, but I'll just note that it's a major area of focus for the business.
David Mutryn: And Bert on your second point nothing else large on the -- in the near-term horizon to call out.
Bert Subin: Great, color guys. Thank you.
Operator: Thank you. Ladies and gentlemen, this brings us to the end of the question-and-answer session. We would like to thank everyone for the participation in today's conference. You may disconnect your lines and log off the webcast at this time. And enjoy the rest of your day.
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