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Text: 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.
Management uses this information internally to analyze the results and believes that may be informative to investors in gauging the quality of our financial performance, identifying trends and providing meaningful period-to-period comparisons.
And with that, I'll hand the call over to Rick and David.
As we announced in January, I will retire at the end of this month and David Mutryn will become the Chief Financial Officer on December 1.
I am confident that David is the right person to succeed me as CFO to help guide Maximus in the future.
It has been a privilege to be the CFO for Maximus and a great place to finish my career.
I am proud of all that we accomplished together as a team during my time here.
While we have been diligently reporting our contributions to shareholders, we have not discussed in this forum, the substantial commitments to ESG and our accomplishments in this area over the last five years.
Maximus is a unique company dedicated to delivering better than average returns to all stakeholders, while simultaneously aligned with core ESG principles by making vital government services more accessible to millions of people.
If you look at our progression on the MSCI framework, we began with a B rating in 2016 and currently hold a BBB rating for 2021.
While BBB is a good score, we believe there is more progress to be made.
Our commitment to ESG is a journey of continuous improvement.
We view our ISS governance score of 2 as solid and we are quite pleased with our latest ISS social score of 1, both as of October 2021.
Our recent ESG report includes our updated ESG materiality assessment and ongoing commitment to provide essential services to the most vulnerable citizens in the communities we serve.
Fiscal year 2021 was the dynamic here with the COVID pandemic creating both challenges and opportunities.
Maximus accomplished significant milestones this year, including winning and operating over $1 billion of COVID response work and closing two large and strategic acquisitions.
We completed another significant acquisition in early October with the student loan servicing business for $5.6 million U.S. Department of Education owned borrower accounts, which we have branded as Aidvantage.
The revenue increase was primarily attributable to COVID response work, which grew about $0.9 billion year-over-year and totaled approximately $1.1 billion for the year.
Revenue also increased as a result of the Attain Federal and VES acquisitions, which together contributed $323 million of revenue in the year.
On the bottom line, our full year operating income margin was 9.6% and diluted earnings per share were $4.67.
As you know, operating income margin is calculated after the expense for amortization of intangible assets, which increased significantly due to the two acquisitions that closed during the year.
Excluding the amortization expense, our operating margin would be 10.6% and our adjusted diluted earnings per share would be $5.19.
Let me point out a few items specific to fourth quarter results.
Number one, as expected, short-term COVID response work declined and totaled $225 million in the fourth quarter, which is $246 million less than in the third quarter.
Number two, the fourth quarter included a write-off of fixed assets, leased assets and deferred contract costs pertaining to a contract in its start-up phase in the U.S. Services segment.
While there are often puts and takes in our results, this was a $12 million detriment to pre-tax earnings or $0.14 diluted EPS, and the most significant reason, our results were below the midpoint of our guidance range.
Number three, implied in our previous guidance was the low fourth quarter tax rate, but our tax expense was slightly more favorable.
And number four, adjusting for COVID response work and revenue from the Census contract, our fourth quarter revenue showed normalized organic growth of 3.4% over the comparable prior year period.
I'll now take you through segment fiscal 2021 results.
For the U.S. Services segment, revenue increased to $1.66 billion as compared to $1.33 billion in the prior year.
The segment experienced strong demand for COVID response work, which contributed an estimated $618 million of revenue to the segment in fiscal 2021 compared to an estimated $129 million of this type of work in the prior year.
The segment operating income margin was 15.3% for the full year and 12.2% in the fourth quarter, which fell short of our expectations, due primarily to the single contract write-off I mentioned earlier.
Excluding the write-off, the U.S. Services margin would be 16% for the full year and 15.2% in the fourth quarter.
The segment's COVID response work helped offset the negative operating income impact on core programs, most notably, the pause in Medicaid redeterminations.
The public health emergency has had multiple extensions, most recently of which occurred on October 15 and will remain in effect for 90 days.
Despite the prolonged negative impact, the guidelines for assuming this work, as communicated by the Centers for Medicare and Medicaid Services, give us confidence that redetermination activities should resume in fiscal 2022.
For the U.S. Federal Services segment, fiscal 2021 revenue increased 15.9% to $1.89 billion.
The segment benefited from COVID response work and the two acquisitions, partially offset by the lower revenue due to the end of the Census contract.
COVID response work contributed an estimated $466 million of revenue to the segment in fiscal 2021 compared to an estimated $71 million of this type of work in the prior year.
As I mentioned, the two acquisitions contributed $323 million this year.
The Census contract contributed $448 million less revenue than in the prior year.
The operating income margin for U.S. Federal Services was 10% in fiscal 2021 as compared to 8.1% in the prior year.
The segment's fourth quarter margin was 9.2% and fell short of our estimates.
This was driven by several non-recurring investments made in the quarter that are expected to benefit our future operating results.
The Outside the U.S. segment experienced strong demand for employment services in fiscal 2021 as it rebounded from the most pronounced impacts of the pandemic.
Revenue for this segment increased approximately $200 million or 40% to $699 million.
Operating income was positive $20 million or a 2.9% margin compared to a $34 million operating loss in the prior year.
As we noted on the August earnings call, the fourth quarter of fiscal 2021 realized anticipated start-up losses, most notably, due to the U.K. restart program ramping.
Let me turn to the balance sheet and cash flow items.
As of September 30, 2021, we had gross debt of $1.52 billion and we had unrestricted cash and cash equivalents of $135 million.
The ratio of debt net of allowed cash to pro forma EBITDA for the full year ended September 30, 2021, as calculated in accordance with our credit agreement is 2.3 times.
This compares to 2.4 times at June 30, 2021.
As we stated on our third quarter call, we used our free cash flow in the fourth quarter to reduce our debt.
Cash flows from operations totaled $517 million and free cash flow was $481 million for fiscal 2021 as compared to $245 million and $204 million respectively for the prior year period.
In addition to improved earnings, strong cash flows resulted from the decrease in the investment and working capital of more than $100 million.
This was driven by good collections combined with advanced payments on new work and deferral of payroll taxes as permitted by the U.S. government.
Pro forma DSO was 68 days at September 30, 2021 compared to 77 days for the same day last year.
Our DSO target remains 65 to 80 days.
Turning to fiscal year 2022 guidance.
Revenue is projected to be between $4.4 billion and $4.6 billion.
Diluted earnings per share is projected to be between $4 and $4.30.
The midpoint of this guidance implies an operating income margin of 8.4%, which includes approximately $90 million of estimated amortization expense.
Excluding the amortization expense yields adjusted diluted earnings per share of $5.07 to $5.37 and the implied operating income margin excluding amortization expense is 10.4%.
We expect cash flows from operations to range between $275 million and $325 million and free cash flow between $225 million and $275 million.
We are projecting that the investment in working capital will increase in fiscal 2022 as the payroll tax deferral is eliminated and the new work matures.
We expect interest expense to be between $30 million and $33 million and the effective income tax rate assuming no change in U.S. federal rates should be between 25% and 26%.
Absent share purchases, we would expect the weighted average shares to be between 62.5 million and 62.6 million.
Turning to segment margins.
We expect our U.S. Services segment to be between 13% and 14% for the year.
We expect the U.S. Federal Services margin to be in the 10% to 11% range.
This expectation includes the Aidvantage program, which we expect to deliver margins in line with similar BPO contracts in our federal portfolio over time.
However, as with many of our contracts, we expect the Aidvantage contract to start with lower margins and increase as the program matures.
Finally, we expect Outside the U.S. operating income margins in the 3% to 5% range.
Let me provide some commentary on the guidance.
On our top-line, the first notable item is COVID response work, which began winding down in the later stages of fiscal year 2021 and is currently expected to contribute about $250 million of revenue in fiscal 2022.
COVID response work is predominantly tied to unemployment insurance support and vaccine administration with shorter periods of performance.
It is important to note the relationships that began with COVID work are now leading to some longer term work, particularly related to unemployment insurance support.
The second item is the start-ups Outside the U.S., including U.K. Restart.
We forecast that these start-ups will add $150 million of revenue to fiscal 2022, which is unchanged from our thinking on the prior earnings call.
The third item is acquisition.
There will be full period revenue contributions from the Attain Federal, VES and the Aidvantage acquisitions.
Combined, these three acquisitions make up approximately $1 billion of our forecasted fiscal 2022 revenue.
If you separate out the COVID work, the acquisitions and a small amount of Census contract revenue in fiscal 2021, our top-line guidance reflects normalized organic growth of 18% with a profile that increases over the course of the year.
This demonstrates that our core business growth engine is accelerating driven by new contract awards in fiscal 2021.
We were successful in winning new work awards in the year with a total contract value of $3.5 billion.
Of that, less than $1 billion was associated with COVID response work.
Our largest single award was the U.K. Restart Programme with a total contract value of more than $960 million over six years.
In addition, the U.S. segments were awarded several new contracts, all of which are longer term work.
On the bottom line, we anticipate a slow start to fiscal 2022, but also a solid line of sight to a strong second half.
There are two primary factors causing this.
Number one, the continued delays in our core programs returning to pre-pandemic levels creates depressed earnings in the first half of fiscal 2022.
As a reminder, we previously noted that the COVID work may decline before we see the corp programs return, which is what we are now experiencing.
Number two, the start-up contracts in the Outside the U.S. segment, most notably U.K. Restart, will continue to ramp with operating losses in the first half of fiscal 2022.
We continue to anticipate these programs will achieve breakeven by the midpoint of the year and significant financial improvement in the back half with performance in our corporate guideposts of 10% to 15% operating income margins over their lives.
The start-up contracts are progressing well and are currently meeting our expectations.
To quantify the steeper ramp in earnings, we forecast 60% to 65% of our operating income and earnings to be realized in the second half of fiscal 2022.
While our earnings profile suggests a valley for the first half of the fiscal year, we anticipate exiting the year at a strong run rate.
I noted the expected segment margin ranges earlier.
The margins in all three segments are expected to improve over the course of the year as the quarterly revenue profile is expected to be less deep than earnings.
We do not provide quarterly guidance, but I will share that the first quarter of fiscal 2022 is forecasted to look similar to the fourth quarter of fiscal 2021 after normalizing for the lower tax rate in the fourth quarter.
Our guidance does reflect our expectation that the public health emergency will conclude and that redeterminations will restart in our third fiscal quarter.
The Outside the U.S. start-ups are ramping up, and we have other portions of the fiscal 2021 new work awards that are scheduled to begin generating revenue in fiscal 2022.
Delays to any of these items, many of which are outside our control, may cause revenue and earnings to move to the right and to potentially fall short of guidance for fiscal 2022.
In closing, Bruce, Rick and I, along with the broader leadership team, are proud of how Maximus rose to overcome the unique challenges in the last two years and emerge a stronger company.
We are pleased to see the underlying organic growth improving as we come out of the pandemic and our recent acquisitions performing well.
On behalf of the management team, we offer Rick our deep appreciation for your leadership.
You have led Maximus through many accomplishments during your tenure as CFO, including leading our M&A strategy development with six major acquisitions, beginning with Acentia in April 2015; closing a new corporate credit facility and funding the VES acquisition through new debt sources for the company; helping navigate our international growth into new geographies as we grew from four countries to nine; pushing us to think and operate as a company at scale, including maturing our corporate back office capacity, which proved vital to supporting our inorganic and organic growth; mentoring and sponsoring many of our rising stars and building a talent pipeline not only in the finance division, but across the company at large; and championing our ESG strategy development and advancements.
I should note that when we ended fiscal year 2014, we had revenues of $1.7 billion and diluted earnings per share of $2.11.
Today, we are reporting $4.25 billion in revenue and diluted earnings per share of $4.67, a compound growth rate of 14% and 12% respectively.
Your expertise helped us continue our growth as a leading partner to government in the delivery of critical programs on a global scale.
Since the beginning of fiscal year '21, Maximus has completed four acquisitions, realized several large wins, transitioned leadership in our U.S. Federal segment and more.
I will spend my time today talking about the progress we've made toward executing the strategy I have articulated since April 2018, how these four acquisitions support those goals and some refinements we're making to that strategy.
On October 6, we closed a contract innovation with Navient Corporation, which the Department of Education Federal Student Aid or FSA approved on October 20 to begin servicing student loans in January 2022 under the new brand name Aidvantage.
As a long-term partner and provider of consumer engagement services to government, Maximus will focus on the end-to-end borrower experience and help fulfill FSA's mission, while remaining independent and conflict-free as we do not and will never provide loan origination, consolidation or collection services.
We view student loan servicing as an opportunity to apply our insights, expertise and quality-driven approach through support of both the FSA and the agency's customers, student borrowers.
Aidvantage is an extension of a long-standing partnership to support FSA and is in line with our core business.
This development demonstrates the availability of increased scope for companies that can successfully manage citizen interactions at scale and our ability to build on trusted relationships with government, a core component of our business model.
As you may recall, we have a position on the FSA NextGen contract vehicle to which this work will likely transition in future contract periods.
Our immediate priority is to successfully transition the 5.6 million Navient borrower accounts to provide stability and high quality service as student loan repayment obligations resume on February 1, 2022.
We subsequently will focus on the FSA's stated goals of improving the borrower experience through improved performance, transparency and accountability under the loan servicing contract.
To that end, our plan includes implementing best practices and continuous review, performance management and quality monitoring to promote greater transparency and maintain compliance.
Again, our role is solely to support student borrowers as they navigate repayment, and for many, options related to available authorized loan forgiveness programs.
As an independent and conflict-free partner to FSA, we will not own, consolidate or originate loans.
Meanwhile, the integration of our VES and Attain acquisitions are going as planned, operating as expected and delivering financial results that are consistent with our acquisition analysis.
To provide a bit more color, I'm particularly proud of our Attain colleagues' recent success, including securing the rebid and expansion of critical work for the Securities and Exchange Commission and supporting the U.S. customs and immigration services client at a critical juncture in their mission.
Likewise, our VES colleagues have achieved record volumes recently in scheduling veterans for critical disability benefit evaluations as that program moves closer to its pre-pandemic operating model.
As for our fourth acquisition in the United Kingdom, I'm pleased to share that Connect Assist, a market-leading provider of citizen engagement centers and digital services has joined Maximus U.K.
This combination strengthens our program administration capabilities and enables our expansion into adjacent markets.
As we previously lacked contact center capabilities in country, a pre-requisite for many government procurements.
Maximus now employees more than 4,500 people in the United Kingdom, including approximately 1,400 healthcare professionals across more than 270 locations, serving as one of the largest providers of employment, health and disability support program administration in the country.
The tireless work of our team this past year resulted in several new contracts and opportunities across the segments.
This includes approximately $1.1 billion of COVID response work to help governments respond to the pandemic.
Our ability to respond quickly and effectively for our clients has provided the proof points and enhanced our relationships now driving additional work opportunities such as unemployment insurance program support services for several states beyond the pandemic.
This fiscal year, we won more new employment services start-up work outside the U.S. than we projected.
This includes the notable U.K. Restart Programme where Maximus provides tailored support to help people back into work.
Thus far, thousands of people have been supported by our delivery of the Restart Programme with nearly 1,500 people finding sustainable employment since we began delivery at the end of June 2021, tracking very favorably against our forecast.
Turning to new awards and pipeline as of September 30.
For the fourth quarter of fiscal year 2021, full fiscal year signed awards were $5.62 billion of total contract value at September 30.
Further, at September 30, there were another $721 million worth of contracts that have been awarded but not yet signed.
Of the $5.6 billion of signed work, $3.5 billion represents new work awards with less than $1 billion associated with COVID response work, illustrating a healthy level of new work in our core business.
Let me turn our attention to our pipeline of addressable sales opportunities.
Our total contract value pipeline at September 30 was $33.9 billion compared to $33.6 billion reported in the third quarter of fiscal 2021.
The September 30 pipeline is comprised of approximately $8.8 billion in proposals pending, $1.4 billion in proposals and preparation and $23.7 billion in opportunities tracking.
Of the total pipeline, 69% represents new work opportunities.
It has been 20 long months since the start of the Public Health Emergency or PHE.
We anticipate that PHE will expire at the end of the first calendar quarter of 2022.
With this in mind, as David noted, we expect a solid second half of FY '22, which means, we should exit the year at a strong run rate.
Taken together, our view is that the market and company operating dynamics anticipated in the second half of FY '22 create a positive environment and momentum for the business.
These dynamics include not just the anticipated conclusion of the PHE and resumption of pre-pandemic activities, including redeterminations, but also the start-up contracts exiting that phase, new organic wins in U.S. Services coming online, the FY '21 acquisitions maturing in their integration and contribution and the benefits of a substantial new work pipeline.
I also want to address an area that has received national attention.
In September, President Biden signed an executive order requiring U.S. based employees or federal government contractors to be fully vaccinated against COVID-19 with limited exemptions for medical and religious reasons.
Earlier this month, per the President's direction, OSHA also mandated vaccination or weekly testing for employers with 100 or more employees, which goes into effect in January 2022.
We are planning for implementation of these requirements, which includes extensive employee education and resources, paid time off to receive a vaccination and frequent reminders regarding timelines and options.
As we have throughout the pandemic, we have prioritized employee safety and well being, and we actively monitor guidance and update our procedures accordingly.
Demand for talent is highly competitive.
Our implementation of these requirements may result in some workforce attrition and difficulty meeting our existing or future hiring needs.
That being said, Maximus has a strong talent brand that was if anything strengthened as a key differentiator over the past 20 months with the many benefits and programs we quickly implemented to support and protect our people.
During FY '21, we hired more than 42,000 employees around the world.
To support the training and development of our employees, over 165,000 online learning resources and tools are available, in addition to other development opportunities.
We continue to operate in a hybrid environment, recognizing that some employees are required to be on site due to customer requirements.
We are imagining new ways of working that put us in an even better position over the long-term to attract the necessary talent for our business through workplace flexibility and outside of historical geographical bounds.
On a final note, I am pleased that our execution on our three-pronged strategy of expanding our clinical business, driving digital transformation for our customers and the citizens we serve and expanding to adjacent markets has successfully led to balanced organic and inorganic growth since I became CEO and set the table for future organic growth in our expanded core and new markets.
With this as the backdrop and our current focus on delivering shareholder value through our FY '21 acquisitions, we have concurrently kicked off a three to five year strategy refresh initiative with participation from across the business.
Not only do we seek to define what the next phase in our clinical and technology journey will look like, but we are looking further over the horizon than we would in our annual planning process.
I'm excited about the energy and ideas that this collaborative process has already yielded and look forward to sharing more formal insights with our shareholders and the analyst community during our planned Investor Day in 2022.
And with that, we will open the line for Q&A.

user
sees fy earnings per share $4.00 to $4.30.
sees fy revenue $4.4 billion to $4.6 billion.
in fy 2022, excluding amortization, diluted earnings per share is expected to range between $5.07 and $5.37.

assistant