Maximus, Inc. (NYSE:MMS) Q2 2024 Earnings Call Transcript

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.