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MAXIMUS (MMS) Q4 2019 Earnings Call Transcript

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MAXIMUS (NYSE: MMS)
Q4 2019 Earnings Call
Nov 19, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Greetings, and welcome to the MAXIMUS fiscal 2019 fourth-quarter and year-end conference call. [Operator instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Lisa Miles, senior vice president, investor relations. Please go ahead.

Lisa Miles -- Senior Vice President of Investor Relations

Good morning, and thank you for joining us. With me today is Bruce Caswell, president and CEO; and Rick Nadeau, chief financial officer. 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 Exhibit 99.1 of our SEC filings. We encourage you to review the information contained in our earnings release today and our most recent forms 10-Q and 10-K filed with the SEC. 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 may contain non-GAAP financial information.

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Management uses this information in its internal analyses of results and believes this information may be informative to investors in gauging the quality of our financial performance, identifying trends in our results and providing meaningful period-to-period comparisons. For a reconciliation of the non-GAAP measures presented in this document, please see the company's most recent quarterly earnings press release. And with that, I'll hand the call over to Rick.

Rick Nadeau -- Chief Financial Officer

Thanks, Lisa. Fiscal-year 2019 was characterized by consistent execution and demonstrated progress on management's strategic plan to lead a digital transformation, grow our clinically related services and expand in key priority markets and adjacencies. We generated healthy cash flow, completed our largest acquisition and returned additional capital to our shareholders through an increase to our dividend. We finished fiscal 2019 with revenue and earnings growth, driven by the acquisition of the U.S.

federal citizen engagement centers last November. As noted in our press release this morning, total company revenue for fiscal 2019 increased to $2.887 billion, which fell within our guidance range of $2.88 billion to $2.9 billion. On the bottom line, total company operating margin for fiscal 2019 was 11%. While our U.S.

health and human services and U.S. federal services segments delivered good margins, we experienced downward pressure on our pre-tax income outside the United States. As expected, diluted earnings per share for fiscal 2019 increased 11% to $3.72, compared to the prior year of $3.35. Our fiscal 2019 tax rate benefited from work credits and R&D credits, which yielded an effective rate of 24.2%.

I will start my comments on segment results with the U.S. health and human services segment. Revenue for the U.S. health and human services segment in fiscal 2019 decreased to $1.18 billion compared to last year.

The anticipated decrease was due to contracts that were rebid or extended. It is worth noting that fourth-quarter revenue increased 4% compared to the prior-year period and was all organic. The segment delivered a strong operating margin of 18.8% for fiscal 2019, which was in line with our expectations and compares to 18% for the prior year. The segment's full-year operating margin also benefited from cost synergies resulting from the November 2018 acquisition in our U.S.

federal services segment. Revenue for fiscal 2019 in the U.S. federal services segment increased to $1.11 billion, driven primarily by the acquisition and, to a lesser extent, by organic growth. The acquisition contributed revenue of $615 million for the full fiscal year and $174 million for the fourth quarter.

Absent the acquisition, full-year organic revenue for this segment increased 3% over last year, driven by new work, which was offset by temporary work that ended. The acquired census contract is tracking in line with our expectations over the life of the contract and delivered approximately $185 million of revenue for the segment for fiscal 2019. U.S. federal services delivered a 10.4% operating margin for fiscal 2019.

As a reminder, the segment's margin may fluctuate due to contract mix. For example, cost-plus contracts typically carry lower margins than performance-based contracts. Looking forward to fiscal 2020, our contract mix will be weighted more heavily toward cost-plus contracts with the Census contract ramping and a full year of revenue from the acquisition. This means that while revenue will increase, there will be some downward pressure on operating margins in the segment.

For the outside the U.S. segment, fiscal 2019 revenue was $599 million as compared to $699 million in fiscal 2018. The decrease was a result of three primary drivers: first, revenue declined by $36 million due to the expected conclusion of the Work Choice and Work Programme contracts in the United Kingdom; second, the segment was unfavorably impacted by foreign currency translation of $35 million; and third, pass-through revenue declined by approximately $16 million in our Australian welfare-to-work contract. The segment's operating margin for the full year was 2.7%.

As we disclosed in prior quarters, the new employment services contracts in the United Kingdom are progressing toward profitability, but they are unfavorable to earnings in the near term. As we discussed last quarter, an accretive component of a contract in Canada was unexpectedly discontinued, which negatively affected results in the second half of our fiscal year. Overall, the segment's employment services business continues to be impacted by robust economies in most of the geographies we operate. As discussed on prior calls, this macro dynamic has led to smaller caseloads, lower volumes and a more challenging environment for keeping harder-to-serve populations in sustainable employment.

While the segment operated below our expectations for the fiscal year, we are managing the business with a goal of moving operating margin toward 5% in the near term. Over the next three years, we are targeting to move the operating margin up to high single digits and then 10%, but economic trends will play a role in the length of time it may take to move this segment north of 5%. Let me turn to the balance sheet and cash flow items. For fiscal 2019, our cash flow from operations and free cash flow was $357 million and $294 million, respectively, exceeding our estimates for both metrics.

Our DSO balance at September 30, 2019, was 72 days, four days of which was a non-cash item, which resulted from the adoption of the new revenue recognition standard implemented at the beginning of fiscal 2019. Capital expenditures for fiscal 2019 increased compared to the prior year due to fixed asset additions related to the Census contract and increased capitalized software expenditures as part of our micro services investment discussed on last quarter's call. During the second half of fiscal 2019, we implemented a new accounts payable system. As of September 30, 2019, our accounts payable was higher than normal by an estimated $25 million to $30 million, which increased our reported cash flow from operations and free cash flow for fiscal 2019.

We expect that cash flow from operations and free cash flow will be negatively impacted in the first half of fiscal 2020 as this normalizes. We finished fiscal 2019 with $106 million of cash and cash equivalents. We remain committed to a sensible and disciplined approach to capital deployment as we aim to create and deliver long-term shareholder value. Our priorities have not changed.

M&A remains our No. 1 priority. We are pleased with the $400 million U.S. federal acquisition last November, which enabled us to build scale, expand our customer base, improve our competitive position and bring on new technology platforms.

Our M&A objective is to find targets that enable us to build long-term sustainable organic growth by continuing to build scale, enhance our clinical and digital capabilities and extend into new adjacencies. We increased our cash dividend 12% to an annualized $1.12 per share. The board evaluates our cash dividend on a regular basis. Our share buyback program remains a viable avenue for uses of cash, but it is opportunistic in nature, and we are conscious of providing shareholders with reasonable returns.

At September 30, we had approximately $146 million remaining under our board-authorized program. We will continue to make ongoing investments into the business to maintain our competitive edge and, ultimately, ensure that we continue to deliver value to our clients. We invest in people, process and technology as we work to fundamentally reshape how governments approach program delivery and consumer engagement. In closing, we are establishing guidance for fiscal 2020.

For fiscal-year 2020, we expect revenue will range between $3.15 billion and $3.3 billion with the increase driven principally by the U.S. federal services segment. We currently anticipate that diluted earnings per share will range between $3.95 and $4.15. This implies an operating margin range between 10.7% and 10.8% and reflects an increase in revenue from cost-plus contracts in the U.S.

federal services segment, most notably from the Census contract and an additional six weeks of operations from the November 2018 acquisition. We were pleased to see organic growth in the U.S. health and human services and the U.S. federal services segments at the end of fiscal 2019.

In terms of fiscal 2020, we have good line of sight to organic growth of 8% year over year with 6% or $175 million from the Census contract as it ramps to full capacity. You will note, we fell a little short of our projection for Census revenue in fiscal 2019, but expect to make it back in fiscal 2020. The remaining 2% of growth to achieve the midpoint of fiscal 2020 revenue guidance of $3.225 billion is forecasted new work. Our forecasted new work assumes a variety of probability-weighted opportunities.

We show this math in the revenue crosswalk exhibit on the guidance slide of the accompanying presentation to this call. We thought it would be important to provide some color on the periods within fiscal 2020. First, the timing of revenue and profit on the Census contract will fluctuate. And given the scale of the program, this will cause some lumpiness in our quarterly results.

Second, based on what we know today, we are forecasting that total company revenue in fiscal 2020 will be stronger in the first half of the year. As a reminder, we will benefit from favorable seasonality in our first quarter from the open enrollment period under Medicare and the Affordable Care Act and the Census contract. Our second fiscal quarter is currently expected to generate the highest levels of revenue, driven by the Census contract. On the bottom line, total company earnings in the first quarter will be sequentially lower than our fiscal fourth quarter of 2019 mostly due to contract mix and program maturity as new work comes online.

We expect earnings to grow sequentially through our fiscal third quarter of 2020. Our guidance also assumes that the Census contract will begin to wind down in June 2020 and, as a result, our fiscal fourth quarter will be sequentially lower than our fiscal 2020 third quarter. We also thought it would be useful to provide some direction as it relates to segment operating margins for fiscal 2020. For the U.S.

health and human services segment, we are anticipating operating margin in the 17% to 18% range. U.S. federal services segment operating margins are expected to range between 9% and 10%. The lower margin reflects the increasing revenue from cost-plus contracts in fiscal 2020, most notably the Census contract.

Ultimately, the operating margin in the U.S. federal services segment will be impacted by the portion of revenue from cost-plus contracts. Our outside the U.S. segment is expected to perform in the low single digits, with the goal to realize mid-single digits by the second half of fiscal 2020 and continue that trajectory in future periods, as I mentioned earlier.

For the full fiscal-year 2020, we estimate the income tax rate to range between 24.5% and 25.5% and weighted average shares outstanding to be approximately 64.9 million, assuming no further stock purchases. For cash flows in fiscal 2020, we expect cash flows from operations to range between $300 million and $350 million, and we expect free cash flow to range between $275 million and $325 million. In addition, the ongoing ramp-up of the Census contract will result in significant receivables throughout most of fiscal 2020, partially offset by an increase in payables. We hope that provides you with insight into our fiscal-year 2020 based on what we know today.

And with that, I will turn the call over to Bruce.

Bruce Caswell -- President and Chief Executive Officer

Thank you, Rick, and good morning, everyone. As Rick noted in his opening remarks, during fiscal-year 2019, we made substantial progress on the key tenets of our strategy to position MAXIMUS for future long-term success. When you examine the macro trends, we've aligned our plan with how the markets are evolving, how our government clients are seeking to address challenges and how consumers are best served through an improved experience in engaging with government programs. With demographic trends of aging populations with more complex health needs, we see an opportunity to deliver services at the heart of the intersection of clinical BPO and digital services.

Today, I wanted to take the time to track our progress toward our three goals of digital transformation, clinical evolution and market expansion and further provide you commentary on how these support our strategic trajectory moving into the new fiscal year. First, I would like to address digital transformation or the cultural shift toward digital disruption within government services we operate. We help lead our clients toward digital maturity by defining and operationalizing these technologies and innovations. We seek two primary objectives with our digital efforts.

First, we aim to deliver a unique citizen experience. Second, we use digital technologies and innovation to improve our overall program efficiencies and to operate smarter, using tools that propel our overall productivity. By meeting citizens where they are on their phones, computers and tablets, we are providing a better experience with unparalleled service while lowering costs and delivering efficiencies for our government clients. We apply innovative tools that integrate with existing systems, maintain security and optimize workflow.

The result is that we're seeing more and more citizens engage through digital channels. For instance, between 2017 and 2019, we doubled digital enrollment volumes during open enrollment for Louisiana Medicaid. In North Carolina, 64% of Medicaid beneficiaries used digital channels to research their 2019 open enrollment choices. And in Virginia, Medicaid applications that were completed by digital channels more than doubled over last year.

As a result of this growing trend toward digital, we have launched 20 consumer websites globally since November 2016 that promote and simplify the interaction with government programs, developed two mobile applications that were trending in the top 100 mobile apps on the Google Play Store during October 2019, and we've been awarded the prestigious 2019 PR News' Digital PR Award in the mobile app category for our Healthy Louisiana Medicaid enrollment app, the first Medicaid enrollment app in the country distinguishing MAXIMUS as a digital pioneer. Our digital efforts drive real value for our clients. We can greatly reduce processing time for all types of documentation, helping prevent and reduce backlogs. We are able to automate repetitive, manually intensive tasks to better utilize staff, improve profitability and, most importantly, offer the most efficient use of tax dollars.

Digital security is also paramount for our operations. I'm pleased to share that as a result of our cybersecurity program management capabilities, we were awarded the Internal Revenue Service Information Technology Security Implementation or ITSI-2 contract to implement strategies to address cybersecurity vulnerabilities within the IRS IT environment. This new award has a total contract value of $119 million over five years. Our success is also illustrated by two additional U.S.

patents awarded to MAXIMUS. The first patent recognizes capabilities we developed to streamline performance monitoring, increase staff optimization and pinpoint lost productivity in our operations. The second patent for process tracking and defect detection enables our projects to monitor and maintain the health of business processes by receiving real-time alerts whenever anomalies occur within them, such as when a task becomes stuck in a queue. These patents are embedded in our proprietary analytics products that differentiate our BPO services.

They build on the foundation of process analysis and extend it to the analysis of contact center and agent efficiency. Complementing one another, our three collective patents provide the ability to run real-world what-if scenarios, which enable our government clients and MAXIMUS to easily understand and visualize how changes such as a major technology investment or policy change could impact their program operations. Continual integration of data across our programs allows for new insights into the performance of our projects and extends operational value from metric management to outcome and behavioral analysis initiatives. Simply put, it's through innovations like these that we're able to deliver outcomes that matter for our customers.

Further, these optimizations can achieve cost reductions of 20% to 30% while improving workflow, resource utilization and quality. Turning now to clinical evolution. Governments are challenged with finding a responsive and cost-effective way to manage aging populations, individuals with more complex healthcare needs and to address population and public health imperatives. These macro trends underpin demand for BPO services with more of a clinical dimension.

By employing our strength in clinical assessment, case management and consumer engagement, we are a natural partner to governments as they address issues ranging from long-term services program eligibility to disability benefit determinations to the social determinants of health outcomes, as I highlighted earlier in the fiscal year. We were recently awarded the California Independent Medical Review or IMR rebid. We first assisted California with this solution in 2013 and further advanced this adjacency with a win in New York earlier this fiscal year. We currently estimate a total contract value of $300 million for this five-year performance-based contract.

Connecting our digital and clinical solutions with artificial intelligence and robotic process automation, we have created a web-based document intake portal supporting a fully paperless environment that provides a sophisticated decision-support tool to our clinical staff. We're also able to maintain a remote workforce, saving costs on overhead and allowing us to retrain staff and transition them to more strategic and satisfying work. This integration of our digital and clinical capabilities has yielded a 30% reduction in assessment submission cycle time through our recent patent optimizations, which I've discussed earlier. Additionally, we were awarded an extension by the Michigan Department of Health and Human Services to implement work requirement services for Michigan Medicaid beneficiaries.

Through this contract, we will assist state residents enrolled in the healthy Michigan plan to comply with qualifying work activity requirements in order to continue receiving their state-sponsored health insurance coverage. With a total contract value of $44 million extending the work through March of 2023, the contract scope includes inbound call center operations, self-attestations, outbound dialing and SMS reminders. Moving overseas. As we've said for years, our fundamental goal is to land and expand in our geographies.

Most recently, in Saudi Arabia, we've been awarded the Social Beneficiaries Employment Program. The program works to reduce the number of Saudi's receiving welfare through training and job placement, serving job seekers on long-term welfare benefits who require more specialist support. The program includes soft skills training and market demand-led training in addition to job placement support. This program will serve a different target population than our current TAQAT contract, which serves those who are unemployed and actively seeking work.

The total contract value is $43.2 million for two years. Moving on to new awards. For fiscal 2019, signed awards were $2.6 billion of total contract value at September 30. Further, at September 30, there were another $242 million worth of contracts that have been awarded but have not yet been signed.

Let's turn our attention to our pipeline of addressable sales opportunities. Our total contract value pipeline at September 30 was $30.2 billion, compared to $29.6 billion reported in the third quarter. Of our total pipeline of sales opportunities, 67% represents new work. As I noted last quarter, an integral part of returning the company to organic growth is converting our pipeline of addressable new sales opportunities into awards.

As part of our approach, we also continue to invest and expand our business development resources, as well as other areas that provide meaningful support to winning new work. In closing, we've shown continued progress on management's strategic plan to lead the digital transformation, grow our clinically related services and expand in key priority markets and adjacencies. As Rick pointed out, M&A remains a priority for us as we aim to find targets that enable us to build long-term sustainable organic growth by continuing to build scale, enhance our clinical and digital capabilities and extend into new areas. Lastly, I want to thank our employees around the globe for their hard work and continued dedication to providing superior customer service and connecting people to government benefit programs every day.

And with that, we'll open up the line for Q&A. Operator?

Questions & Answers:


Operator

Thank you. [Operator instructions] Our first question today is coming from Richard Close from Canaccord Genuity. Your line is now live.

Richard Close -- Canaccord Genuity -- Analyst

Great. Thanks for the questions. Bruce, I was wondering if you could sort of help us out with digital transformation and the clinical evolution. Specifically, I'm trying to gauge in terms of -- well, first, on digital transformation.

How much of that initiative do you think is -- provides the opportunities for incremental revenue versus maybe increasing your competitiveness on pricing and driving increased profitability for the company?

Bruce Caswell -- President and Chief Executive Officer

Hey, Richard, thank you for the question. It's a great question because there are several components to the digital transformation strategy that you've highlighted. Clearly, as we got started, we looked at how digital could really help us drive process efficiencies in our back-office operations. And that's going to drive profit improvement.

It also allows us to redesign workflows and create more efficient workflows for the work that we do, which can drive greater productivity. All of that enables us to maintain competitiveness and expand competitiveness and also, obviously, generate better margins, generating profit that we can invest to expand into more markets. I'm really pleased with the progress that we've made in areas like robotic process automation. Recently, one of the big RPA tool vendors out there, Automation Anywhere, elected to post kind of case study of their work with MAXIMUS to talk about the bots that we've been developing and implementing and some of the savings that we've been driving and so forth.

So there's -- that's definitely an important component to it. Also, through a lot of those automation efforts, we can improve quality and assure quality in our operations, which is critical as well, especially when we're held to SLAs in contracts. But at the same time, we've been working to improve the citizen experience, and the example I'd use to illustrate how you can drive an expansion in role or scope and more revenue comes from the work that we're doing in British Columbia. We've got what is really an omni-channel customer contact center platform there.

And to make a bit of a distinction, there's a difference between omni-channel and kind of multichannel. An omni-channel platform implies that there's process choreography going on behind the scenes so that a citizen can begin a transaction in one modality and complete it in another, and it's relatively seamless. So you're not, for example, reauthenticating people, and an agent that might be serving as a citizen over a voice channel is aware of correspondents that might have been had electronically through chat or email previously. In British Columbia, we implemented a video authentication platform or a video chat platform.

It's important for two reasons. Number one, citizens historically had to go to a government office as soon as they receive their health benefit card and literally be authenticated face to face. So you have people taking buses around town and often, in many instances, in rural areas traveling hours to get to government offices. They can now do that through a video chat, which is fantastic.

Government started thinking what other use cases do we possibly use this for, and there are many, one of which they've implemented already enables students that are studying outside of the country are really students that are studying in the country to authenticate themselves to government to then apply for and receive student loans. Historically, that's very difficult if you're out of the country and you have to wait for your next break to come back and apply for your loan and so forth. And you get a delay in your funding, and it's not a good citizen experience. A very small example, but one where, I think, as you put these platforms in place, government will work collaboratively with you to figure out additional use cases and applications, and that's absolutely a way to grow the business.

The other component of your question, I think, was the clinical side. And so how can I help you there?

Richard Close -- Canaccord Genuity -- Analyst

Yes. I was just trying to get the sense of with digital transformation and then clinical evolution how much you think that increases the company's competitiveness and just like the overall contracts you guys can go after.

Bruce Caswell -- President and Chief Executive Officer

Well, at a high level, I'd say, there's no doubt that as we continue to evolve our clinical capabilities, we increased the competitiveness of the company because there are a few companies that can operate in that domain with programs of such scale and complexity and deliver on the quality requirements and the service levels that are required, while having that work done by a highly trained clinical staff. A great example would be the health assessment advisory services contract in the United Kingdom. Similarly, as we look at additional markets where we're not necessarily looking at providing direct clinical care delivery, but rather clinical services related to assessments, whether it's fitness for duty or pre-employment screening assessment or investments related to individuals applying for certain benefits, that -- by opening that aperture, we can go even further. I mean we're doing some work right now on further evolving our health-related strategy in the federal business, we are seeing that opening new markets over the course of the next two to five years quite substantially.

So I'm confident that by pivoting in this direction and opening the aperture and becoming more clinical in the work that we do, we will reposition the company into new exciting adjacent markets. I think that makes us relatively unique in our ability to deliver this, as I said in my remarks, the combination of digital technologies and clinical services or clinical BPO, as we call it, at scale.

Lisa Miles -- Senior Vice President of Investor Relations

Does that answer your question?

Bruce Caswell -- President and Chief Executive Officer

Does that answer your question?

Richard Close -- Canaccord Genuity -- Analyst

That's good. And then just as a follow-up, we've got the new pipeline information and the new definition over this last year. Obviously, the new work is going to be the driver to the reemergence of organic growth. Is there any sense you could provide us in terms of the pipeline, maybe how a breakout in terms of how much of that is near term maybe over the next year or two versus longer term?

Bruce Caswell -- President and Chief Executive Officer

Yeah, there's some helpful data, Richard, in our press release. I think that will at least go a few steps toward answering that question, and that specifically we've got -- of the pipeline of $30.2 billion, $2.9 billion is proposals pending decision, $1.2 billion is proposals in prep, and the remaining $26.1 billion are opportunities tracking. And it's worth noting again that we're looking two years out in terms of the total pipeline view, and this is not a probability-weighted pipeline. So as opportunities move in and out of those farther out stages, what we call the identified stage, it's not uncommon to have the pipeline flux as values can change, as programs become either more definite or less definite.

Richard Close -- Canaccord Genuity -- Analyst

OK. Thank you.

Lisa Miles -- Senior Vice President of Investor Relations

Thanks, Richard. Next question, please.

Operator

Our next question is coming from Charlie Strauzer from CJS Securities. Your line is now live.

Charlie Strauzer -- CJS Securities -- Analyst

Hi. Good morning.

Bruce Caswell -- President and Chief Executive Officer

Good morning.

Charlie Strauzer -- CJS Securities -- Analyst

First of all, thank you for the additional info that you gave us relating to the guidance, but I was hoping that you could provide us with some additional detail on the quarterly cadence that's implied within the guidance.

Bruce Caswell -- President and Chief Executive Officer

Charlie, I'm going to ask Rick to address that one.

Rick Nadeau -- Chief Financial Officer

Sure. Thanks, Charlie. We recognize that fiscal-year 2020 has many dynamics, and the Census contract being a large program that is ramping to pre-peak operations during the year and midyear and then is expected to go into ramp down does create some complications. I think as a result of that program, the timing of the revenue and the profit will cause some quarterly fluctuations in our results.

Based on what we know today, revenue for the first half of fiscal 2020 should be greater compared to the second half of fiscal 2020. We expect revenue in the first quarter of fiscal 2020 to be sequentially higher compared to the fourth quarter of fiscal-year 2019. This is driven by the Census contract and by open enrollment under the Affordable Care Act. Our second fiscal quarter is forecasted to generate the highest level of revenue during the year, but revenue in the third quarter and the fourth quarter steps down as the Census contract begins a slow ramp down.

We anticipate that the earnings will be sequentially lower in the first quarter of fiscal '20 compared to the fourth quarter of fiscal '19. There are some start-up contracts and some seasonality for contracts that are performance-based that are causing that. Based on our present expectations, we are forecasting sequential improvement in earnings through the third quarter of fiscal '20. Our fourth quarter of fiscal '20 is forecasted to be sequentially lower compared to the third quarter as the Census contract begins to wind down.

I hope that's helpful.

Charlie Strauzer -- CJS Securities -- Analyst

That is helpful. Thank you. And then just switching gears a little bit to the new kind of rebids and upcoming contracts. I know that the U.K.

has not released an RFP yet for the integrated service contract, but any sense of timing with that?

Bruce Caswell -- President and Chief Executive Officer

Yeah, you're right. They have not. And so from a timing perspective, the current contract is going to run through June of 2021 on the health assessment advisory services, and we're standing by to await further news or see an RFP as it relates to next steps on the integrated services contract that they've talked about.

Charlie Strauzer -- CJS Securities -- Analyst

Great. Thank you.

Lisa Miles -- Senior Vice President of Investor Relations

Thank you, Charlie. Our next question, please.

Operator

Sure. Next question is coming from Donald Hooker from KeyBanc. Your line is now live.

Donald Hooker -- KeyBanc Capital Markets -- Analyst

Hey. Great. Good morning. So it's good to see, I guess, the pipeline continues to warm.

I guess my question is, in the pipeline, there's a big number there of opportunities tracking. And I'm wondering if you could provide some sort of context there. Are these renewals -- I guess is that big CMS renewal that's now captured in there? So my first question is, is there any way you can kind of how much of that is renewal versus new work? And then secondly, how much of that -- how do we think about that from a discretionary projects versus sort of less discretionary products, considering that we have a presidential election next year?

Bruce Caswell -- President and Chief Executive Officer

Great questions, Don. Let me start and ask Rick to add some colored commentary if he has some at the end of my answer. I guess first of all, you're absolutely right, there is a large opportunity that we've talked about previously. I think it's at about $5 billion in the pipeline related to the renewal of the CMS customer contact operations or CCO contract.

We've got -- I would also say in terms of giving you a color, 67% of the total pipeline that we've talked about is new work related. And I think there's strong representation in that pipeline. There's a weight toward federal in that pipeline, but there is representation across our geographies and across our business lines. And I think that's fundamental to the discussion that we had about the return to organic growth that we're driving.

I'd also say, as you would expect for a company of our nature, there will be some larger BPO deals in that pipeline that we would be chasing again across the segments of the business. And in some segments of the business, you see a preponderance of relatively smaller transactions that are maybe more related to the IT services-type contracts that we have or even the consulting-type business that we have in our U.S. health and human services. So it's a reasonable mix, not dissimilar really to what we've had historically as a BPO-driven company.

Your question, though, about what's -- kind of which programs are -- have kind of staying power across administrations and which ones don't. It's interesting. I would tell you, fundamentally, our business is a business that, obviously, as you know, is linked to long-term demographic trends and is linked to critical social benefit programs that governors -- governments are going to administer across administrations. I think it's interesting that, and we could go into great length on this, that the Affordable Care Act continues to roll along, in fact, this year with rates even lower in the marketplace, and we're back into the open enrollment period there.

A lot of conversations about even under next administration how the patchwork, relative care and coverage could be adjusted. But there's -- fundamentally, there's that set of core health and human services programs that governments will continue to support and administer to those populations. It's much, much harder to take something away when an entitlement has been granted. And then there are mission-oriented programs, and I would say specifically in federal, that -- and we've talked about this a little bit on prior calls, whereas the budgets got in place for federal agencies, we saw the agencies being willing to bring to market transformational contract RFPs that really will go out another three, five, 10 years for that agency.

And so with the funding certainty that they gained through the budget process, they were able to then bring some of those RFPs out, and we expect, in most instances, those types of major, like, IT transformation-driven programs in those agencies would continue across administrations as well. I hope that provides a little bit of color without obviously being able to put specific metrics to it.

Donald Hooker -- KeyBanc Capital Markets -- Analyst

Got you. And then maybe my other question would be, maybe any updated thoughts. I mean you just gave guidance for fiscal '20, but I guess as we think about beyond fiscal '20 with the Census contract rolling off, what is sort of the -- how are you maybe quantitatively or qualitatively sort of managing that drop off in revenue? Can you reallocate resources? I mean I'm sure you've been getting this question a lot. But maybe just update us on sort of, I mean, fiscal '21 really with regards to Census rolling off?

Bruce Caswell -- President and Chief Executive Officer

I'm going to ask Rick to start by just speaking to the dynamic that -- of fiscal '21, and then I'd be happy to add to the number of the actions that we're taking to address that.

Rick Nadeau -- Chief Financial Officer

Sure. On our second-quarter earnings call, we estimated the Census revenue to be about $200 million for fiscal '19 and about $350 million for '20 and less than $50 million for '21. As you heard from my prepared remarks today, we came up a little short on FY '19, and the actual results were approximately $185 million. However, we do expect to recover that shortfall next year with about $175 million of incremental revenue for total FY '20 revenue from that Census contract of approximately $360 million.

Yes, there will be some revenue similar to what we said in the second-quarter call that goes into FY '20, but you will have a step down there, and that revenue should be less than $50 million in FY '21. Let me kick that back to Bruce. I mean you can rest assured that we're going through, and we will do everything we can to make sure that we rightsize and evaluate all of our programs. But Bruce?

Bruce Caswell -- President and Chief Executive Officer

Yeah. And then the other side of that, Donald, is the growth side, right? And so we've been very focused, if you will, on, first of all, the reconstruction and growth of the federal sales organization, which has really driven excellent pipeline expansion, where we're now able to field opportunities from other agencies and departments and to take our capabilities deeper into the federal marketplace. We're running a similar play, if you will, in the U.S. health and human services business.

We had an excellent sales leader join our organization in the third quarter, who is in the process of building up a sales team there, and we've made good progress in making some strategic hires in that marketplace. Fundamentally, they have to have something to sell and they have markets to address. And I'll go back to kind of paradigm a bit that I've spoken to earlier about growth. One -- and that is we kind of look at it through three lenses or three rings, if you will, the innermost ring being our teams need to do everything they can to sell off the current contracts and expand the core business, driving volume increases and taking new opportunities to our customers in the core programs that we serve.

The second ring would be, call it, markets or services that we currently don't offer, but really don't require an acquisition to be completed. So we can do it with organic growth initiatives. A great example in our U.S. health and human services market would be, earlier this year, the Office of Personnel Management clarified some critical fed regulations as it relates to whether private sector contractors can perform certain functions for public benefit programs.

And that regulation and that clarification was quite clear that as long as the private sector contractor meets the merit system principles for employment, they can. This can open up new opportunities for us to serve populations historically that we couldn't and perform functions more deeply in programs like Medicaid and SNAP and Department of Labor programs, as examples, that we couldn't. Now that we've got that opportunity, you can bet that we're out talking to our customers because the core services we can provide really don't provide new -- they don't require new technology or acquisitions, but they expand those services to new program areas. That's an example of the second.

The third ring, as you would imagine, is where an acquisition is required. And we continue to have a very disciplined priority new markets program, where we're consistently looking at adjacent markets up to two adjacencies away and evaluating them for suitability. We're pretty -- I'd say, we're very disciplined in terms of the criteria that we look at. They need to meet strict thresholds in terms of size, expected profitability, growth rate and so forth.

And Rick always says, you also can't go buy a company at the giant when you want to buy one. So the point being, we are constantly promoting or demoting or deprioritizing our priority new markets list dynamically as our analysis progresses and as the universe of actionable targets in those markets also evolves. And our priority, as we've said many times, for deploying capital remains strategic M&A that can create new platforms of growth for the company. And obviously, with FY '21 on the horizon, we're focused like the laser on that.

I hope that helps, Donald.

Donald Hooker -- KeyBanc Capital Markets -- Analyst

Yeah. Thanks for the commentary. Appreciate it.

Lisa Miles -- Senior Vice President of Investor Relations

Thanks, Donald. Next question, please.

Operator

Thank you. [Operator instructions] Our next question is coming from Dave Styblo from Jefferies. Your line is now live.

Dave Styblo -- Jefferies -- Analyst

Thanks much and good morning. Thanks for the questions.

Bruce Caswell -- President and Chief Executive Officer

Hi.

Dave Styblo -- Jefferies -- Analyst

First one I had was related to the outside of U.S. segment. You guys had talked about reaching a 5% margin target for all of fiscal-year '20. Guidance here is implying something a little bit less than that low single digit.

I was curious, is the lower -- slower progress on that again related to the new U.K. contracts that are working through maturity right now? Or is there some other new headwind that's on that book? And then as you guys talk about getting to the high single digit margin target over the next three years, can you help break that down and help us understand how much of that is self-help, if you will, versus needing some help from a more favorable economic backdrop?

Bruce Caswell -- President and Chief Executive Officer

Great. Great question, Dave, and Rick is going to jump in there.

Rick Nadeau -- Chief Financial Officer

Sure. First thing, Dave, is we're not satisfied with that outside of U.S. margin. And we do have a goal to achieve 5%-plus margins in the near term.

I consider this to be a goal for us to reach by the end of fiscal 2020. However, when you look at it, we should fall a little bit short of 5% for the full year, but as I've said, 5% toward the end of the year. I also mentioned a three-year time frame. And this is our goal of aiming to get that margin into a more acceptable range.

And I do say we want to achieve that at 10%. As I mentioned in my prepared remarks, the combination of robust economies and the ramp down of that accretive contract component in Canada has negatively impacted our margin outlook in the near term. We are making investments in business development across the portfolio, and we're working on several large new procurement opportunities. The nature of these opportunities are longer sales cycles and so I think you'll see revenue contribution not expected to affect this year, but fall into the future years.

You are right that we've had the start-up programs in the United Kingdom that have -- that are working in achieving toward profitability over time. I don't think there's really anything new. I think it's just the same things that we've been talking to you about over the last year. I do think those programs in the U.K.

are coming to profitability a bit slower than we would have liked, but they will be profitable, and there will be programs that we're happy to have in the long term. Think that you should also see improvement in our occupational health business in the United Kingdom. We've made some investments that are now in place relating to clinically related technology platforms that really will enhance the -- both the customer and the clinician's experience and should improve our competitiveness there. And so I think all of those combined, it's better operations and winning more work, and we do have some good large procurements that we're working there.

Bruce, did you have anything else on that?

Bruce Caswell -- President and Chief Executive Officer

Just as related to the last question -- last element of your question around macro drivers. I mean clearly, we are affected by cyclicality in our employment services business, and I think that just places an emphasis on our land-and-expand strategy, where we continue to work to diversify our portfolio outside the U.S. so that we have opportunities to move into the health space and address other needs of government during a period of otherwise unprecedented low unemployment. It's also worth noting that priorities of government change in this environment, and they focus a bit more on, first of all, employing the, call it, structurally unemployed individuals that have had the greatest challenges to finding and sustaining employment, but also they look at up-skilling and training requirements, they look at job retention issues.

And so you can imagine that as we look at those areas, including labor mobility and cross-border labor mobility, we want to design programs that address the immediate needs of government in this macroeconomic climate.

Dave Styblo -- Jefferies -- Analyst

OK. That's great. And then just a second one on capital deployment. You guys have little over $100 million of cash now.

Some calculus there suggests that should grow to maybe nearly $350 million by the end of fiscal-year '20 after considering your free cash flow expectations and inclusive of dividend payments. So that amounts to 7% of your market cap, obviously gives management a lot of flexibility. Curious how you guys are balancing deploying that toward buybacks versus waiting for the right acquisition. I know you've been very disciplined and want to make sure you're getting the right asset for the right price.

But how aggressive does management want to be on buybacks versus willingness to use some of that cash and then, perhaps, lever up for a deal?

Rick Nadeau -- Chief Financial Officer

So Dave, this is Rick. We've been consistent, and we will remain consistent that M&A and strategic M&A will be our No. 1 priority. We do run an active program.

We look at a lot of things. I'm very proud to say that I think we've been very disciplined. There's a lot of things that we look at we just don't think fit our profile and we don't think are worth the price that some people are asking for them. I think that having a good, clean balance sheet like ours allows us to be opportunistic with that and when the right deal comes along, I think we will pull that trigger.

With respect to buybacks, we do say that we are opportunistic with respect to those buybacks. So I don't think we're going to lose that discipline. I think we will continue to look at it. When it's a good opportunistic situation, we will do buybacks.

I have $146 million of authorization from the board of directors with respect to that topic, and we'll use it at the right time, but opportunistically.

Dave Styblo -- Jefferies -- Analyst

Great. Thanks much.

Lisa Miles -- Senior Vice President of Investor Relations

Thanks, Dave.

Bruce Caswell -- President and Chief Executive Officer

Thanks.

Lisa Miles -- Senior Vice President of Investor Relations

Next question, please.

Operator

Thank you. Our next question is coming from Frank Sparacino from First Analysis. Your line is now live.

Frank Sparacino -- First Analysis -- Analyst

Hi, guys. Just one for me. Maybe, Bruce, you had made a comment earlier just around the ACA marketplace and, obviously, it looks like enrollment this year will be down again versus last year. Maybe, first, just talk about what impact that would have to MAXIMUS.

I assume that was in your forecast. And then secondly, related to the marketplace, if you could talk about just the state-level activity. I guess there's a number of kind of moving pieces, some positive, some negative. Clearly, Medicaid expansion still may be happening in some new states.

It looks like the work requirements have taken a step back in a number of states. And then at the same time, you have some states launching their own marketplaces and trying to move away from healthcare.gov. And I don't know if, when you look at all those factors together, whether you think that's a positive opportunity for MAXIMUS in the future. But that would be helpful.

Bruce Caswell -- President and Chief Executive Officer

Absolutely, Frank. Good question. So it's kind of early to comment on ACA enrollment since we're in the middle of open enrollment now. And so I'll note that I think we had -- there was about a 4% decline last year relative to 2018, but that one is in the review mirror, so kind of stay tuned.

What I would tell you is that before we completed the combination with the general dynamics customer engagement centers, we studied this dynamic pretty extensively and took the advice of the third-party advisors as well and really modeled out what we expected the declines to look like over time. And there are dynamics that relate not just to the ACA market as you reach the historically low rates of uninsured, but also the dynamics in Medicare, as a greater portion of the population coming into Medicare may elect Part B managed care plan. All of that's baked into our forecast. And I would say the trends that we've seen are consistent with what we expected based on our pre-acquisition modeling.

So that's that piece. In terms of state-level activity, you're right, you've got a number of dynamics. I'd probably say the positives basically counterbalance any negatives. I don't have an overall view that it's creating a growth in market opportunity nor do I feel concerned about it putting pressure on our business.

The dynamics are positive for us in states that are expanding Medicaid with what's going on in Virginia, for example, and the outcome of the election there, strong support for Medicaid expansion, moving on through implementation. It's one of the states that we support. We're thrilled to support the Medicaid program there and have for years. Similarly, you do have a host of states, more than a half dozen, that are moving -- have said they're going to move off of the federal exchange into state-based marketplaces, and that does open up opportunities for us.

We are by far the largest provider services for health insurance exchange call centers and so we're excited to participate in those types of procurements. We think our credentials are unparalleled in that market. And similarly, as states still try to figure out how best they want to address emerging issues in Medicaid, we're very well positioned. And I will just -- if I may take just a moment to address social determinants of health, I spoke on a prior call about the Phase 1 project that we did in West Virginia, where we conducted surveys of the population that we were enrolling as part of Medicaid to determine really what their major gaps were in other areas of their lives, whether related to food insecurity or other issues.

The survey response rate -- we conducted 23,000 surveys, and our survey response rate was in the 65% range. That's really high for the Medicaid population. In fact there are a lot of health plans out there that would kill to have a response rate at that level. And when you have that broader population, that higher response rate, we have a 99% confidence interval in the data that we have that has identified these gaps in service.

So then we shift into Phase 2, and we're now working with our client there to implement Phase 2, where we're going to take all that knowledge and then help basically manage the members through a great technology platform that a partner company is providing that will give us the capability to have virtual coaches and track the members as they react -- as they interact with community-based organizations and will create a curated network of community-based organizations to serve these individuals and, ultimately, help them get to the services that they need and also communicate back through the network if they have additional gaps that need to be addressed. So that's a great next step in that pilot, and it's an expansion of that pilot. And we're going to start working with specific counties in West Virginia that have really high levels of reported needs. I think that's an important element of the market because there's an open question as to whether that responsibility of progressing social determinants rests with the managed care plans or with the program administrators in companies like MAXIMUS.

So that's a long way of just saying there are more dynamics, I think, that as Medicaid continues to involve that -- and evolve that we can benefit from it.

Lisa Miles -- Senior Vice President of Investor Relations

Does that address your questions, Frank?

Frank Sparacino -- First Analysis -- Analyst

Yes. Thank you.

Lisa Miles -- Senior Vice President of Investor Relations

And do you have any others?

Frank Sparacino -- First Analysis -- Analyst

No. That's it. Thanks, Lisa.

Lisa Miles -- Senior Vice President of Investor Relations

Our next question, please.

Operator

[Operator signoff]

Duration: 59 minutes

Call participants:

Lisa Miles -- Senior Vice President of Investor Relations

Rick Nadeau -- Chief Financial Officer

Bruce Caswell -- President and Chief Executive Officer

Richard Close -- Canaccord Genuity -- Analyst

Charlie Strauzer -- CJS Securities -- Analyst

Donald Hooker -- KeyBanc Capital Markets -- Analyst

Dave Styblo -- Jefferies -- Analyst

Frank Sparacino -- First Analysis -- Analyst

More MMS analysis

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