Title

Presentation

Maximus, Inc. beats earnings expectations. Reported EPS is $1.85, expectations were $1.84.

Operator: Greetings, and welcome to the Maximus, Inc. Fiscal 2026 First Quarter Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, James Francis, VP of Investor Relations. Thank you. You may begin.

James Francis: Good morning, and thanks for joining us. With me today is Bruce Caswell, President and CEO, and David Mutryn, CFO. 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. I 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. For a reconciliation of the non-GAAP measures presented, please see the company’s most recent Forms 10-Q and 10-Ks. And with that, I’ll hand the call over to Bruce.

Bruce Caswell: Thanks, James, and good morning. Our ability to deliver consistent performance is evidenced in our first quarter results and enables us to raise earnings guidance and narrow our revenue guidance for the full fiscal year 2026. Maximus, Inc. operates in a resilient sector of government spend, and the delivery of essential services in a high-quality and efficient manner is a hallmark of our business. The performance and outcomes-based nature of our portfolio has aligned well with administration priorities and has historically operated largely unaffected through temporary shutdowns. The strength of that foundation enabled us to expand to support new customers, as with the US Air Force, and to focus on the pursuit of opportunities ahead that we see both in our federal and state markets.

Most currently, that’s Medicaid and SNAP on the state side. And I’ll share how those are tracking. Finally, I’ll update you on our continued strategic evolution as a trusted provider of technology-driven solutions and services to our government customers. This strategy includes expanding our use of automation, including in some instances AI, to augment how work is done, enhance citizen satisfaction, and improve financial performance. Enabling reinvestment to support our customers and drive shareholder value. Our first quarter results reflect virtually no direct impact to our contract portfolio from the shutdown last fall. Historically, a significant majority of our programs are deemed essential when a temporary shutdown occurs, resulting in the ability to maintain our P&L forecast.

However, two secondary impacts tend to be slower payments from customers, which David will touch on, and temporary delays in award decisions. Both of these dynamics occurred, so let’s go through the awards and pipeline metrics now. For 2026, signed awards totaled $246 million of total contract value. In addition, at December 31, we had a balance of $699 million worth of contracts that have been awarded but not yet signed. These awards translate into a book-to-bill ratio of approximately 0.5 times using our standard reporting for the trailing twelve-month period. The lower TTM book-to-bill ratio was impacted by very light award activity in our just completed first quarter, which had a quarterly book-to-bill ratio of 0.2 times. The awards in the quarter comprised primarily several smaller recompete wins for the US services business, which we typically have on a rolling basis.

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The government shutdown had a direct impact on our US federal award activity, which has also been noted recently by others in our industry. We view it as a timing dynamic and not a structural change, and we anticipate award activity will pick up across the three remaining quarters of this fiscal year. Our fiscal 2026 guidance assumes virtually no contribution from new work and that subsequent award activity likely fuels our fiscal year 2027 and beyond. Turning to our pipeline of sales opportunities, we had $59.1 billion at December 31 compared to $51.3 billion reported at September 30. The current pipeline is comprised of approximately $3.8 billion in proposals pending, $2.4 billion in proposals in preparation, and $52.9 billion in opportunities we are tracking.

The share of new work in the total pipeline is 59%. Two elements of our pipeline are noteworthy. First, our reporting is beginning to include a small number of potential opportunities in Medicaid and SNAP related to the working families tax cut or WFTC legislation. We had messaged on prior calls and noted that the September 30 pipeline did not yet include such opportunities. While not a major driver of the pipeline increase, this quarter, discussions with certain states are progressing such that we’re adding specific opportunities that we believe represent actionable paths to support implementation of the new legislation. I’ll touch on that momentarily. Second, proposals pending or submitted and proposals that we are currently preparing total a combined $6.2 billion of total contract value.

This is a 55% increase from the combined figure of $4 billion one year ago, which we believe is an indicator that positive pressure is building to both secure our normal course recompetes as well as enable future new work awards that contribute to our long-term organic growth target. Let’s go to updates on the current challenges facing state customers, starting with the majority of whom expanded Medicaid and will soon be required to conduct twice-yearly eligibility determinations for their expansion populations. Cumulatively, the expansion population nationwide is one quarter of the total Medicaid population. We’re fortunate to have strong working relationships through existing contracts with many of the expansion states for whom we already perform eligibility support services.

We continue to see more frequent eligibility support driving up engagement with Medicaid beneficiaries. As we’ve noted previously, more frequent engagement is the principal driver of volumes on many of our state contracts. In other words, activity levels per beneficiary, not absolute enrollment, are the key drivers for many contracts. Where practicable, anticipate states will leverage existing contracts and establish program infrastructure to meet the legislative requirement for semiannual eligibility determinations, which begins next January 1. Another new requirement for states that I’ve spoken to previously and also pertains to the Medicaid expansion population is community engagement, also known as work requirements. Also effective 01/01/2027, this will compel states to implement new compliance processes and expand overall program administration.

Community engagement comprises employment, education, and training, and volunteering for those beneficiaries not qualifying for an exemption. For years, Maximus, Inc. has supported programs designed for employment as an end goal in adjacent programs like TANF and SNAP. We believe our ability to not only determine compliance with work requirements but to also connect beneficiaries to local job opportunities builds on capabilities we have developed in these adjacent programs and further differentiates Maximus, Inc. Presently, we’re working closely with current and prospective state customers on paths to modify program operations and leverage our technology investments while delivering a high-quality customer experience. To that end, in a January 29 press release, CMS announced Maximus, Inc.

as one of 10 companies with existing Medicaid eligibility and enrollment contracts with states that have voluntarily pledged to help states successfully prepare for and implement Medicaid community engagement requirements. Anticipate making digital tools and resources such as our community engagement tracking tool and job boards available to existing state Medicaid clients at reduced costs through this investment. I’m pleased to see pipeline opportunities that anticipate both RFP-based procurements and contract amendments to begin implementation activities in the coming months. Let’s turn to the SNAP program, touching on a couple of high points as reminders. SNAP represents an emerging opportunity for Maximus, Inc. as it is a program that has traditionally been administered by states and counties themselves.

SNAP has a smaller administrative funding component, which historically has been shared by states and the federal government on a fifty-fifty basis, as well as a larger benefit funding component, the food assistance itself, which is 100% federally funded. Beginning in government fiscal year 2028, if a state has a payment error rate greater than 6%, which an estimated 43 states including DC do, they’re required to begin contributing to the benefit in a manner correlated to their error rate. States may either use their FY ’25 or FY ’26 error rate for calculation of their share of food costs, making actions this year potentially consequential for many to reduce their payment error rates. Finally, under the WFTC Act, beginning in government fiscal year 2027, all states will be responsible for 75% of the administrative funding for SNAP.

Put together, it’s expected to highly incentivize states to work swiftly to reduce, if needed, and maintain their error rate at or below 6%. Last week, we announced the launch of our accuracy assistant tool, that is purpose-built to help states reduce their SNAP payment error rate. Using predictive analytics and intelligent automation to help detect data inconsistencies and flag potential errors before they occur and become costly. We are proud to offer this AI-powered solution that’s designed to help provide states with real-time error prevention and reporting to support continuous improvement. Our accuracy assistant tool has the capability to integrate into existing state data environments, making it an attractive option as states consider costs of implementation and timelines.

We anticipate states will prioritize tools such as accuracy assistant in the near term to help drive error root cause analysis while considering longer-term process redesign, technology, and operating models to deliver consistent, higher quality determinations. With our decades of experience delivering outcomes for our customers, we believe Maximus, Inc. is well equipped to support both near and longer-term state objectives. Moving to what is clearly becoming a game changer in the government services arena, Maximus, Inc.’s strategic expansion of automation, including the use of AI, is impacting the way we work, the technology solutions we offer our customers, and the delivery of customer outcomes in the public experience or PX through the programs we administer.

I’ll highlight a few recent examples. Recently unseated a well-established incumbent, scoring 98% of available technical points on a bid in our outside the US segment. The scope of which includes the technology platform to support the determination of government compensation based on clinical evidence accompanying claim submissions. Our solution represented an evolution of our AI-powered intelligent document processing tool in current production in our US business. Overall, the bid scored nearly 97% out of the 100% scoring criteria. This win demonstrates our ability to leverage AI-driven technology capabilities that are designed to help meet customer demand across our business while derisking delivery through component modularity and standardized deployment models.

Our AI solutions and capabilities consist of a combination of in-house development, especially in areas where our proprietary process knowledge and data provide the most value, and carefully chosen partnerships with leading providers for more standardized use cases such as employee self-service. We’re now demonstrating practical applications of AgenTik AI tools within clearly defined and controlled environments. We believe that these tools, recognized for their goal-oriented behavior, adaptability, and context awareness, have the potential to deliver greater business value. As I’ve mentioned before, within our business, we’re acting as customer zero from which we develop capabilities and experience then demonstrate for our customers. Our data shows that staff at all levels and departments quickly adopting AI tools and participating in training.

In fact, in some cases, our frontline employees are the most active, underscoring the human-centered transformation that blends advanced technology with cultural and operational change. With positive proof points already achieved, we’re excited to deploy the next wave of capabilities through which we can show the art of the possible to our customers. Continuing on AI, I’d like to highlight another program where we implemented an AI-based solution to significantly streamline the processing of payment-related disputes. Our solution automated data extraction and validation of electronic records followed by empirical non-subjective evaluation against state laws. This approach has led to 45% of disputes being resolved autonomously and significantly increased throughput capacity for our customer.

We also measured material improvements to financial performance on the program on a year-over-year basis, thereby enabling further technical investment on behalf of our government customers. Finally, as further evidence of our evolution as a trusted provider of increasingly AI-driven solutions to our government customers, I’m pleased to announce that Maximus, Inc. was very recently selected as the single awardee of the US General Services or GSA blanket purchase agreement or BPA to support the agency’s government experience contact center or GXCC services transformation, which is still subject to the regulatory protest period. Previously known as the GSA public experience portfolio, GXCC supports the channels, including telephone, email, and web chat that help the public navigate government programs and services and information.

As described in the solicitation, the BPA performance period is up to five years, including options, and has no maximum orders or ceiling amount. As included in the solicitation, the GSA anticipates awarding five within two months of this award. And this BPA can support new customer agency programs under their own call orders. I’ll close today with the exciting news that Maximus, Inc. just won a spot on the Forbes list of America’s best employers for 2026. This is our second year being recognized for this annual award, which is conducted through an independent survey. The full award list and corresponding details are scheduled for announcement by Forbes next week on February 10. We are honored to be recognized and appreciate all of our employees that contribute to the trust placed in us by our customers.

And with that, I’ll turn the call over to David.

David Mutryn: Thanks, Bruce, and good morning. We’re pleased to start fiscal year 2026 with solid first quarter results that show the business is tracking to our expectations. We had no material income statement impact from the government shutdown last fall. Guidance today reflects improvement to our full-year earnings outlook, and we are narrowing the range of our revenue guidance. During the quarter, we completed the divestiture of our child support business within the US services segment, which comprised approximately $25 million of annual revenue and a gain of approximately $9 million was recognized. While a longtime business of Maximus, Inc., we concluded that it was neither meeting our financial expectations for growth and profitability nor was a core offering as we’ve evolved to pursue higher value services in the state market.

We are committed to disciplined evaluation of all areas of the business on an ongoing basis and have a desire to free up organizational capacity to focus on more attractive opportunities for Maximus, Inc. in the future. Turning to quarterly results. I’ll begin with framing them as broadly in line with our expectations when we provided fiscal year 2026 guidance on the November earnings call. For 2026, Maximus, Inc. reported revenue of $1.35 billion, representing a 4.1% decline over the prior year period. Of that, roughly 1.5% was related to the outside the US segment divestiture that occurred near the end of the first quarter of last year. Most of the balance was organic movements. The US Federal Services segment posted positive organic growth, which was offset by the US services and outside the US segments.

On the bottom line, adjusted EBITDA margin was 12.7% and adjusted EPS was $1.85 for the quarter, which compares to 11.2% and $1.61, respectively, for the prior year period. I should mention that divestiture-related activity, which is not reflected in our adjusted metrics, drove a year-over-year improvement in our GAAP earnings. The prior year period contained $38 million of charges for the outside the US divestiture, while this current period included a gain of $9 million for the small divestiture in the US services segment. Beyond that, our year-over-year improvement was driven by the performance of the US Federal Services segment. I’ll also note that results today are consistent with our expectations of a slightly lower first quarter adjusted EPS compared to the remaining quarters of fiscal year 2026.

Turning to the segments. Revenue for the US Federal Services segment increased 0.8% to $787 million as compared to the prior year period, and all growth was organic. As a reminder, revenue for the prior year period in this segment benefited from unexpected volume growth and natural disaster support, which we did not forecast to recur at the same level. The operating income margin for this segment in the first quarter was 16.5%, as compared to 12.7% in the prior year period. This quarter’s segment margin reflects the wider adoption of technology initiatives that enhance the productivity of our staff across multiple program areas within US federal services. We anticipate the durability of this benefit through fiscal year 2026, and we’ve increased the guidance for this segment’s full-year margin.

Into the US services segment, revenue decreased to $415 million as compared to the prior year period revenue of $452 million. Contraction in this segment was anticipated and stems from a number of programs that are experiencing lower volumes or demand for engagement compared to prior years. We continue to believe there is a strong opportunity for Maximus, Inc. to assist state customers with emerging requirements in their Medicaid and SNAP programs. The segment’s operating income margin for the first quarter was 7.1%, compared to 9% for the prior year period. This quarter’s lower margin follows a similar pattern to last fiscal year, where the Q1 margin was depressed, and we contemplated this dynamic in fiscal year 2026 guidance. In recent years, the need to have more resources for the open enrollment period temporarily increases costs beyond the incremental revenue contribution.

As I’ll touch on shortly, the full-year margin guidance for this segment reflects an improvement to the bottom end of the range. Turning to the outside the US segment, revenue decreased to $143 million as compared to the prior year period revenue of $170 million. A majority of this delta, about $19 million, was attributable to the divestiture of the Australian and South Korean businesses near the end of the prior year period. The remainder of the decrease stemmed from lower volumes on several programs and was partially offset by a small currency benefit. The segment realized an operating loss of $1.4 million compared to an operating profit of $8.1 million in the prior period. The leaner segment following the divestitures has prioritized business development investments.

Meanwhile, the corresponding revenue contributions tied to new work opportunities have shifted out, also affecting full-year margin guidance for this segment. In prior periods, we have spoken to margin stability in this segment, and we do not view this quarter as changing our belief around a healthier segment. Our goal over the longer term remains to drive further margin improvement by building scale in our present geographies. Turning to cash flow items. Cash used in operating activities was a net outflow of $244 million, and free cash flow was a net outflow of $251 million for the quarter. These first-quarter cash outflows reflected expected seasonality around the timing of cash payments in the business, as well as temporary delays of collections in our US Federal Services segment, a result of administrative delays on one of our programs and, to a lesser extent, some lingering delays from the government shutdown.

These delays drove a step-up of our days sales outstanding or DSO to seventy-eight days for this quarter. We anticipate the DSO will remain temporarily elevated at March 31, and then normalize in the latter half of this fiscal year. Our free cash flow guidance is unchanged and is still expected to range between $450 million and $500 million. We ended the first quarter with total debt of $1.58 billion, resulting in a consolidated net total leverage ratio of 1.8 times. The increase to the leverage ratio from 1.5 times at September 30 resulted from near-term borrowing needs amidst the cash flow dynamics in Q1. We remain below our stated target leverage ratio range of two to three times. As a reminder, this ratio is our debt net of allowed cash, to consolidated EBITDA for the last twelve months as calculated in accordance with our credit agreement.

Finally, absent any M&A activity or share repurchases, which we don’t explicitly forecast, we would continue to expect to finish fiscal year 2026 at or below one point zero times. Speaking more broadly about capital allocation, our first priority is organic investment. We run a disciplined process to evaluate and fund initiatives, where we consistently deploy capital to refresh technology, build capacity, and design more effective ways for our customers to accomplish their missions. From there, our priorities have not changed from what we’ve articulated on prior calls. We continue to seek acquisitions that can accelerate future organic growth, under a disciplined evaluation framework with a bias towards the federal market. I’ll finish with updated guidance for fiscal year 2026.

We’re raising earnings guidance, narrowing revenue guidance, and maintaining free cash flow guidance. We started fiscal year 2026 with strong visibility, and our first-quarter results naturally strengthen our view of today’s updated guidance. Starting with revenue, both ends of the range are reduced by $25 million to remove the approximate impact of the divested business. This means the bottom end of our revised fiscal year 2026 guidance is $5.2 billion of revenue. We are adjusting the top end of the range by an additional $50 million to account for delays in our already modest in-year new work revenue assumption. This brings the top end of our range to $5.35 billion and provides us excellent visibility to revenue guidance. Our full-year adjusted EBITDA margin guidance for year 2026 is now approximately 14%, which is a 30 basis point improvement from prior guidance.

Our adjusted EPS guidance increases by 10¢ and is now expected to range between $8.05 and $8.35 per share. At the midpoint of $8.20, this reflects year-over-year earnings growth of more than 11%. There are corresponding updates to our full-year operating margin assumptions by segment. We expect the US Federal Services margin to range between 16.5% and 17%, a 100 basis point improvement from prior guidance. We expect our 10.5% to 11% range, which is bringing up the bottom end from prior guidance. For outside the US, we believe the segment will be profitable this year with an estimated full-year margin of 13%. Other updated assumptions include expected interest expense of roughly $75 million, and we anticipate our full-year tax rate to range between 24.5% and 25.5%.

In conclusion, we’re pleased with how fiscal year 2026 has come into focus. We believe the updated guidance reflects a solid line of sight on our current portfolio of programs and highlights the durability of the essential services we provide to government. Further, we are excited by the opportunities for the business as we are seeing building demand for a tech-enabled partner to implement government imperatives. This supports our conviction on the organic revenue growth potential of Maximus, Inc. as we take prudent steps now to prepare for growth in fiscal year 2027 and beyond. And with that, we will open the line for Q&A. Operator?

Operator: Thank you. We will now be conducting a question and answer session. Our first questions will come from the line of Charlie Strauzer with CJS Securities. Please proceed with your questions.

Charlie Strauzer: Hi, good morning. Thanks for taking my question. Good morning, Charlie. Yes, absolutely. Quick question, kind of broader picture kind of question. When you look at your revenue guidance, roughly how much of that is in hand versus having to be which versus new work?

David Mutryn: Yes, Charlie, it’s David. Thanks. Yes, as Bruce mentioned in the script, there’s virtually no new work remaining forecast. Even entering the year, as we said, it was already modest. Our initial guidance coming into the year had about 3% of not yet new work in the midpoint of the guidance. So with the narrowing of the revenue range, that’s very small now.

Charlie Strauzer: Makes sense. Thank you very much. And this same same with you, David, for a few minutes. If we could just get a little bit more color on the segment revenue guidance and your thoughts behind some of the drivers that or potentially impediments to achieving the stated goals.

David Mutryn: Yeah. We feel confident in our guidance range. For, you know, US services, revenue was down more in the first quarter. That was expected in line with our forecast. We don’t believe that that’s a run rate that will continue. In fact, we expect the year-over-year comparison should improve for US services over the remaining quarters of the year. And actually, by the end of the year, by Q4, we believe year-over-year organic growth will resume. For US services. I’d point out for federal some of the things I mentioned in the script related to natural disaster support and the surge revenue will make for some tough comps in the federal segment for the rest of the year. So there’s a little color by segment.

Charlie Strauzer: Got it. That’s great. And then Bruce, you mentioned the new award. Kind of AI-related from the GAO. Perhaps, you know, give us some examples of the type of programs that you could be awarded in that.

Bruce Caswell: Sure. That blanket award? Sure. And I just I do want to clarify that it’s the GSA, General Services. But the still early days, first of all, it’s really up to the client in terms of the type of task orders that might come through the contract. But to give you a couple a little bit more color, both on the platform and on the types of programs, the underlying platform that we bid on that is our TXM platform that we’ve talked about I think, extensively on prior calls, but also certainly through our marketing activities. And, TXM is a cloud-based platform that brings together a multichannel contact center environment. So it’s not just voice with natural language processing. And with AI that can obviously assist with that, but also, web chat but also intelligent document processing.

And more and more these days, document processing takes many forms. It could be people, taking images of and submitting paper documents, but also responding through digital channels and applications and so forth. Having information pushed to them that they then respond to. So to give you a use case, think of like the Food and Drug Administration where somebody needs to report a food product or something that they bought that they think might be contaminated, or to which they maybe had an adverse reaction. They may begin the call by calling in and, just providing that basic information, and the system may then push to them a request, for example, for an image of the barcode of the food product. And it may ask where the food product was purchased.

And depending on the recipient’s or the vent the caller’s response, there may be multiple stores of that type in the area where they’re calling from and it’ll further be able to use mapping capabilities to say, well, which store actually was it? So there’s a great deal of intelligence that you can build into the consumer interaction to make it very, very seamless. But the real power that we see in this is that often contact centers are the front lines for understanding broader issues that are happening, neither public health issues or maybe you know, issues related to food product safety. So the front lines for the FDA or even the front lines for the CDC could be contact centers where you start seeing calls surging in certain areas of the country related to an event.

It’s the analytics capability and the data analysis that you can do on top of this platform that is, in many ways, its most powerful asset in terms of helping agencies achieve their mission. So I, you know, I can talk about some of its attributes being, you know, cloud-based and modular and flexible and scalable and so forth. But I’m glad you asked the question the way you did because it’s really that use case that brings it to life. We’re excited to get going. It’s a very recent award. But like we said, we are excited to support the GSA as they work to implement programs that are important to them, like related to government procurement information centers and so forth, but also to give other agencies and departments the ability to take advantage of this great vehicle.

Hope that helps.

Charlie Strauzer: Yes. Very helpful. Thank you on that. And then stay with you, Bruce. Could talk a little bit more about SNAP and obviously, early days there too. And know, in your kinda early conversations with state customers, what’s the kind of receptivity been towards the new offering you talked about recently?

Bruce Caswell: To address it directly, the receptivity to our Accuracy Assistant has been really positive. It’s a great tool. It’s a tool quite frankly, think states have really needed because it allows you first of all to kind of to mine the datasets of existing cases and understand what the root causes are that could be driving error rates up in the first place. Sometimes those root causes are there are just fundamental inaccuracies between the data that an applicant is providing and data that could be available through third-party data sources that you want to check against. And that might be just because, you know, the data is stale or the individual is reporting the data in a different manner than, has been reported through other electronic means.

Can also have inaccuracies that are related to, just the training of individuals collecting the information. I know that I struggle with, you know, semi-monthly versus biweekly income. Which is which right that kind of thing. So the accuracy assistant tool helps first of all by learning and then it can be used real-time as cases are coming in and being processed. Processed to identify cases that have the attributes that could lead to an error if is not taken. It then allows the worker and that worker could be a state or county worker or it could be a Maximus, Inc. employee to intercede and collect further information from the beneficiary before you put inaccurate data into the database against which a rules engine runs that might make an inaccurate determination.

It’s important to, recall too that error rate at state level both the positive errors and the negative errors in the sense that if you’re underpaying someone, that’s as much an error as if you’re overpaying someone. So it’s the collective score that a state has that has to be below 6%. So we’re excited to get going on that. Would say one other thing, and that’s we’d expect the initial conversations with states, to lead to interest in the tool and the licensing and deployment and implementation operation of the tool. And then on top of that, that’s the near-term kind of effect. But in the longer term what you really want to do is have a conversation of how do we look at the workflow, business process, what fundamentally has led us to the state that we’re in, honestly.

And figure out how to redesign that and instrument that business process differently. So we think that there’s a almost a consultative that could lead to business process services opportunities in the medium to longer term with the SNAP population with these states. And like I said in my prepared remarks, time is of the essence because it’s measurement period that we’re in right now, FY ’26, that’s going to determine the component of benefit funding that states are going to have to provide in federal government fiscal year 2028 beginning in that year.

David Mutryn: Maybe I’ll just add a little, Charlie, since we’re on it. We’re often asked about you know, trying to size the opportunity and the timing. So I can just comment a little bit about that. We we had shared last year and and really for the combination of emerging needs for Medicaid and SNAP with a multitude of assumptions, we estimated that potential needs by states for for both Medicaid and SNAP all combined could create a high single to low double-digit organic growth opportunity for US services and we continue to believe that this is a reasonable estimate for the ultimate revenue run rate from this work once it’s fully ramped. And as far as timing goes, we’d we’d expect if new work would layer in over fiscal year 2027, and into fiscal year 2028. So fiscal year ’28 at some point, could be kind of the full run rate of the new normal under these requirements.

Charlie Strauzer: Great. Very helpful there. And then just shifting gears to the VA contracts, any update there into the timing?

David Mutryn: Sure. Go ahead, David.

David Mutryn: So our current contracts have a period of performance through 12/31/2026. So not impactful in any way to this year’s guidance. Presumably, RFP and everything will come out between now and then. We remain confident in our performance under the current contracts. And that remains to be the timing.

Bruce Caswell: I might just add one thing, Charlie, and that’s that, back in Q2 of last year, talked about some of the investments that we’ve been making in the program from a technology standpoint. So we don’t want you to have the impression that we’re kind of just waiting for the rebid to come out. Actually have been very, very busy with technology investments that can improve the veteran experience, reinvesting back into that program for government to make it a better veteran experience, enable us to have the capacity that we believe will be required under the rebid while maintaining high-quality levels. So there’s a lot going on behind the scenes this year and this summer. As we implement new technology, and we’re very excited about that work that’s ongoing.

Charlie Strauzer: Great. Thank you. That’s very helpful. Thanks for taking my questions.

Operator: Sure. Thank you. Thank you. Operator, back to you.

Operator: Thank you. Our next questions come from the line of Brian Gesuale with Raymond James. Please proceed with your questions.

Brian Gesuale: I wanted to dig into the want to dig into the Pac Deck stuff. It looks like the volumes, the completed volumes were down 11% sequentially organizationally there. You talked about there not being impact from the shutdown. Did you see any monthly change in those volumes that you ran through your system from October through December?

David Mutryn: Thanks, Brian. It’s David. Without seeing the data right in front of me, there’s presumably some seasonal impact to consider with December with the holidays and things. So I’m not sure if that would be something you consider. I think broadly speaking, our view of the volumes hasn’t changed much over the past few quarters. There was certainly a surge period last year where the vendors collectively were processing more that were coming in, and that was an intentional kind of deliberate search by the customer there. So we’ve continued to see some moderation when you look at 26 versus 25. But still strong underlying demand. So we see cases that are inbound for the whole system continue to kind of slowly grow, which shows underlying strong demand.

Brian Gesuale: It was my understanding that the VA was working a lot of surge overtime to get those cases to you. So during the shutdown, that overtime and that rate of pushing those cases to the vendor community didn’t slow down at all. It just seems like that would maybe be nonmission critical to run overtime to push these cases and maybe there would be a little bit of a disruption in the calendar fourth quarter where even October volumes might have been as light as the December volumes?

David Mutryn: We didn’t see any meaningful impact. I mean, the real surge period was earlier in ‘twenty five. See both in our results, but also in the overall caseload of the vendors.

Brian Gesuale: Okay. Fantastic. For your guidance for the year, what are you viewing the packed volumes off of this run rate that you had in the first quarter?

David Mutryn: The short answer is pretty steady. For the remainder of the fiscal year from the first quarter.

Brian Gesuale: Okay, great. Moving over maybe to the US Service business. Can you explain some of the lower volumes guess maybe how do we think about the lower population of beneficiaries on Medicaid impacting those numbers presumably incremental call volume on exchanges as premiums were you know, going all over the place. Maybe just help us understand how that impacted things in the quarter.

David Mutryn: I don’t think there was really a precise impact from those in the quarter. There was no kind of single driver to the revenue change year over year. There was a number of program. You know, all in all, we continue to have a portfolio, especially on the Medicaid side, which is highly transaction-driven. So we do view the net impact if the additional requirements result in a lower total membership, we think it’s still in that positive because of the additional transactions that will need to take place to accomplish that.

Bruce Caswell: You know, Brian, I might just sorry, go ahead. And then I’ll add a little.

Brian Gesuale: Yes. Go ahead, Bruce.

Bruce Caswell: No, please. I think as you’re thinking about the future years, for Medicaid too, there’s a dynamic that I don’t think we’ve called out succinctly before that we wanted to make sure we were clear on. That is, the Medicaid, community engagement requirements for the expansion population are as you know effective 01/01/2027 but we likely will see activity in the ’26 ’27 as there’s a lot of outreach activities that states have to engage in to that eligible population. And so they’re sending letters, they’re making phone calls and so forth saying, ready for this. This is gonna be a new requirement for you and so forth. That activity is something I think where states are still working through what portion of the population they actually have to directly reach out to.

In some cases, the state might say, well, if I can, through data matching, preliminarily determine that a certain cohort of this expansion population doesn’t actually, qualify for the work requirement because they have certain conditions that meet exemption requirements. I’m not even gonna bother reaching out to them. But that’s ground that hasn’t been covered yet. And I think lawyers are talking about, well, do you just reach out to everybody? And then take it from there. So you’ll see a bit of you know, kind of volatility in that as that shakes out. And I think CMS’s guidance to states and the activities around as, you know, their recent announcement and so forth supporting states will help bring some clarity to that. The that work requirement or community engagement requirement is a real thing as of January 1 with even some activities preceding that.

The dynamic that we want to also focus on, though, is the redetermination. When you think about it the requirement for semi-annual redeterminations doesn’t happen until January 1 and that means that the activity won’t happen until July. Because you could have a new you know somebody who’s newly determined eligible on 01/01/2027 you’re not gonna need to redetermine their eligibility till July of that year. But I think there’s been some thinking that you see this like major surge in redetermination activity starting in January. Not really the case. It’s the cohorts that start rippling through mid-year. That’s why David made the point earlier that ’27 is a building and you get the full run rate benefit of these activities in ’28. Hope that helps.

Brian Gesuale: Yeah. That’s really helpful color. I appreciate that. On US Services, what’s the drivers for so I’m just trying to determine how transitory these lower volumes are on the programs? Maybe you can give some specific programs or broader plots of that where we’re seeing the lower volume. How transitory that is and then what would drive improvements in both the revenue run rate and the margin outlook as we go forward, right? Because presumably, I think your margins will need to see a significant recovery to hit the full-year bogey that you’ve put out in the US Services segment?

David Mutryn: Yes. I’ll start with the margins. So as I said in the prepared remarks, there’s an element of seasonality in the portfolio. US services that’s a little more pointed than it has been historically. But what you saw last year as well with the first quarter being the lower margin for US Services. And really, it’s really driven by a couple of contracts, which caused this dynamic where profitability is down in the first quarter, but then higher in the remaining 03/2001 results, I would also frame as in line with our expectations on both the top and bottom line for US Services. So that it’s a little more structural with our contracts than any trend.

Brian Gesuale: Can US Services grow for the year?

David Mutryn: We as I said in the first question, we expect likely not for the full year, but we expect it to turn to positive organic growth by Q4.

Brian Gesuale: Okay. And then maybe just a real quick one and I’ll jump out of the queue on the federal services. Can you remind me the magnitude of the FEMA kind of nonrecurring element that kind of pops in? And I think, maybe just remind us what month that’s the most pronounced as well or what quarter rather? We look at comping out that business in federal?

David Mutryn: Yes. As context, last year was in the $100 million range, about 2%. Of our revenue, just the natural disaster support and it’s typically the first February, kind of the hurricane season, and aftermath but it was it spread a little more last year. So it’s hard to predict, but typically, it’d be hurricane season that that drives that demand.

Brian Gesuale: Okay. Great. Thanks for taking my questions.

David Mutryn: Sure. Thank you, Thanks, Brian. Operator, back to you.

Operator: Thank you so much, everyone. This does now conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation. And enjoy the rest of your day.

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