Greetings and welcome to the MAXIMUS Fiscal 2020 First Quarter Conference call. This conference is being recorded. It is now my pleasure to introduce your host, Lisa Miles, Senior Vice President of Investor Relations for MAXIMUS. Thank you, Ms. Miles. You may begin.

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 the 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 or 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. Management uses this information in its internal analysis 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.

Thank you, Lisa. This morning MAXIMUS reported revenue for the first quarter of fiscal 2020 of $818.2 million compared to $664.6 million in the prior year period. Top line growth was driven by the expected increases in the U.S. Federal Services segment due to a full quarter contribution from the acquired business, the expected ramp-up of the Census contract and organic growth in both our U.S. Health and Human Services and U.S. Federal segments. This was partially offset by reductions in our outside the U.S. segment. Total company operating margin was 9.7% for the first quarter and lower compared to the prior year period. This is due to a greater mix of cost-plus contracts that generate lower operating margins and continued weakness in our employment services businesses in our outside the U.S. segment, which continues to be challenged by market conditions. For the first quarter, diluted earnings per share were $0.91 and better than our expectations, benefiting from strong operational and financial performance in our U.S. Health and Human Services segment and the timing of revenue and income within our U.S. Federal segment. I will now speak to our segment results in the first quarter. First quarter revenue for the U.S. Health and Human Services segment increased 6% to $312.3 million compared to the same period last year. All growth was organic and attributable to new contracts and expansion of existing work. The operating margin for the segment in the first quarter came in better-than-expected at 18.6%. The segment benefited from strong operational and financial performance across a number of health services contracts. Additionally, synergies resulting from the federal citizen engagement centers business acquisition in November 2018, continue to help this segment's margins. Revenue for the first quarter of fiscal 2020 in the U.S. Federal Services segment was $366.6 million, representing an increase of $149.6 million compared to the same period last year. First quarter revenue for this segment exceeded our expectations, mostly due to the timing from the acceleration of approximately $10 million of revenue into the first quarter from future periods. In addition, the Census contract continued its ramp toward peak activity levels and the segment realized a full quarter benefit related to the acquisition of the Federal Citizen Engagement Centers business. The Census contract delivered approximately $70 million of revenue in the first quarter and is expected to grow in the next two fiscal quarters. On the bottom line, the U.S. Federal Services segment finished the quarter with an operating margin of 8.6%. As a reminder, FY 2020's contract mix will be weighted more heavily towards cost-plus contracts, which increases revenue and operating income but dilutes margin. Outside the U.S. segment, first quarter revenue was $139.4 million and lower compared to the prior year period. We experienced organic declines, primarily in our employment services businesses in which volumes and case loads continue to be challenged by the effects of robust full employment economies across our geographies. The segment ended the quarter nearing breakeven. As we have previously discussed, with nearly half of the work in the segment tied to employment services contracts in Australia and the U.K., we have already taken measures to manage our costs. We are working with our clients and other industry partners about the appropriate terms and performance-based measures needed to sustain a viable supply chain in light of the macroeconomic environment. The devastating bushfires in Australia also tampered results in the first fiscal quarter. The government has taken measures to protect its citizens and has temporarily modified certain requirements for program participants, which will disrupt our employment services case flows, placements and outcomes in the coming months. Australia has also been affected by the outbreak of the coronavirus. While it is too early to quantify, we anticipate an unfavorable impact due to the reduced need for job seekers in certain sectors, such as tourism. Both of these events will have temporary unfavorable impacts on the business in Australia. The degree of impact will largely be determined by the duration of impact and length of recovery in the region. We are monitoring the situation closely and supporting our government client, customers and employees in this time of need. We are also taking steps to diversify our portfolio in markets such as the United Kingdom by making strategic investments to broaden our efforts in emerging opportunities, new market development and additional sales and marketing activities. To give you some color for fiscal 2020, we are investing approximately $5.5 million in the U.K., as our team has been developing key partnerships and working to extend our reach into new agencies. These investments come at a time when the U.K. is in need of financially stable partners to deliver key policy objectives for the government. And while many of these opportunities have long runways, our efforts could prove to be pivotal in expanding our portfolio in the coming years. I will speak briefly on balance sheet and cash flow items. In the first quarter, MAXIMUS delivered cash flows from operations of $84.6 million and free cash flow of $76.8 million. Days sales outstanding were 71 at December 31, which is within our expected 65 to 80 day range. At December 31, 2019, we held cash and cash equivalents of $149.5 million and no outstanding draws on our credit facility. During the quarter, we purchased 26,000 shares of MAXIMUS stock for a total of $1.9 million. On the topic of capital allocation, our #1 priority continues to be acquisitions that drive long-term sustainable organic growth. Any targets would be based on the need to build scale, to enhance our clinical and digital capabilities, extend into new adjacencies or any combination of these attributes. As is our standard practice, we will opportunistically purchase our own shares as well as pay a quarterly dividend of $0.28 per share. Finally, we are maintaining our revenue guidance of $3.15 billion to $3.3 billion, and our diluted earnings per share guidance of $3.95 to $4.15 for fiscal year 2020. We continue to expect a general profile of slightly higher revenue in the first half of the year compared to the second half. As we indicated last quarter, there may be fluctuations in our results due to the timing of revenue. We have two dynamics at play. First, as I mentioned earlier, approximately $10 million of revenue accelerated into the first quarter from future periods; and second, we are also expecting the timing of a large change order to occur in the third quarter, whereas we had previously forecast to recognize this change order in the second quarter. As a result, we now expect that earnings for the second quarter will be consistent with the first quarter and will peak in the third quarter, driven by the Census contract. Our guidance for cash flow from operations and free cash flow remains unchanged. We still expect to finish the year with an income tax rate between 24.5% and 25.5%. And with that, I will hand the call over to Bruce.

Thank you, Rick, and good morning, everyone. MAXIMUS delivered solid first quarter results driven by top line growth in the U.S. Federal Services segment and solid operational delivery and strong financial performance in our U.S. Health and Human Services segment. As Rick noted, we remain on track to achieve our fiscal year 2020 guidance. Our CCO program over-delivered in the quarter with open enrollment for Medicare and the marketplace, ending in December. Under both programs, we achieved favorable statistics during the 2019 open enrollment season. Under the Medicare program, we received more than 4.5 million IVR calls with more than 3 million answered by CSRs. We answered nearly 300,000 web chat contacts, 129% higher than last year and achieved a 93% customer satisfaction score and a 97% quality monitoring score. Under the state-based exchanges, we received nearly 5 million IVR calls with nearly 3 million answered by CSRs, completed an estimated 840,000 enrollments through CSRs and achieved a 91% customer satisfaction score and a 96% quality monitoring score. With the Affordable Care Act and Medicaid as underpinnings, the state health insurance landscape is still evolving. States are addressing their unique demographic needs with new Medicaid expansion initiatives and efforts to establish state-based marketplaces. In light of this, we were recently awarded the Get Covered New Jersey contract by the New Jersey Department of Banking and Insurance to help transition the state's marketplace from the federally facilitated marketplace to a state-based exchange. The New Jersey marketplace is targeted towards consumers who are seeking a medical and/or dental qualified health plan that do not receive employer-sponsored health insurance and do not qualify for Medicaid or Medicare. In addition to the consumer engagement center, the scope of our operations includes: assisting consumers with eligibility, consumer health plan choice counseling, supporting inquiries from brokers, navigators, assisters and carriers, and referring consumers to other agencies or stakeholders as needed. This is a key step in the effort to improve health coverage access for New Jersey residents and allow the state greater control over its health insurance market and related policies in the long run. We are excited to utilize our innovative approach to focus on seamlessly supporting consumers through multichannel engagement and helping the state achieve its programmatic goals. With the New Jersey contract, MAXIMUS now operates 5 state-based exchanges across the U.S. Additionally, we continue to expand the work we're doing to assist states and delivering Medicaid enterprise services with the recent win to deliver provider management services in Ohio, whereby we will implement and operate our provider credentialing and management solution for the state's Medicaid providers. Our work in provider management started more than a decade ago, and our portfolio has since grown to include work in 9 states, along with a healthy pipeline of additional opportunities. This new Ohio contract is anticipated to be $44 million over 10 years. While each of these individual contracts is small, together, they comprise a nice portfolio of strategic contracts built upon our core business. Lastly, and most recently, February 1 marked the launch of Phase II for the 2020 decennial census, which runs through July 31, 2020. Our operational scope includes 10 contact centers across 8 states and 8,500 customer service representatives during peak operations, who will help support the census' goal of surveying 146 million households. In preparation for this peak performance period, thousands of candidates were interviewed, and we made more than 3,300 job offers. I look forward to providing additional color on Census 2020 as we progress during the fiscal year. Over the past two years, we've been working to understand our government clients' changing priorities and forward-looking policy initiatives. We are now seeing shifts in policy that may provide new opportunities for companies like MAXIMUS. In November 2019, the Office of Personnel Management, OPM, issued a memo to state leaders that clarified that states have the discretion and flexibility to determine appropriate staffing methods through employees or contractors in the administration of federally funded state administered programs. This overturns the long-held assumption and prior guidance that certain functions must be performed exclusively by government employees. This clarification enables states to engage in public-private partnerships that are better prepared to address program gaps in funding, talent, technology and the level of customer service that people expect. For example, in many states, a historically siloed program administration model has limited their ability to provide seamless and comprehensive customer service to multi-program beneficiaries. This clarification grants flexibility by allowing states the option to work with private sector partners to implement integrated citizen services models. With the role of private partners no longer as limited, more cost-effective, customer centered, digitally enabled services are now possible across any number of state administered programs. It's early days and a change to an interpretation of a 50-year-old law, but our efforts in creating awareness and action across states and federal agencies have shown positive results on a bipartisan basis. There's no requirement that the states change anything, but states now have additional options and a great deal more freedom to transform and modernize their operations. Governors and agency leadership alike have called this a game changer, and many have already embraced the flexibility this clarification provides to allow them to rethink how best to deliver essential public benefits. And quickly transform their policy interest into efficient and more cost-effective services. This is a significant cultural shift in the way states think, and we're working directly with state clients on white papers and ideas on how to make this shift without disruption. These are long-term opportunities that could take years to develop with a decade's long tailwind. But it's also a new opportunity that could help governments address a rising retirement wave, potentially saving hundreds of millions of dollars over time and helping close potential gaps they may be encountering. Moving on to new awards. For the first quarter of fiscal year 2020, signed awards were $176.6 million of total contract value at December 31, 2019. Further, at December 31, there were another $439.5 billion worth of contracts that have been awarded, but not yet signed. Let's turn our attention to our pipeline of addressable sales opportunities. Our total contract value pipeline at December 31 was $30.6 billion compared to $30.2 billion reported in the fourth quarter of FY '19. Of our total pipeline of sales opportunities, 69% represents new work. M&A remains our #1 priority for capital deployment as we look to supplement our current capabilities and as we seek to create new growth platforms in markets with strong long-term fundamentals. We view M&A as a series of concentric circles. The inner-most circle is represented by tuck-in acquisitions. These are straightforward, directly incorporate into the business and are often done for technical advantage, such as a near adjacent market play or to position for an important procurement. The second circle represents a capability play, such as our previous Ascend and Acentia acquisitions. These provide additional capabilities that further complement our business. The third circle offers scale in priority markets, such as our recent November 2018 Citizen engagement center acquisition. The last and most outer circle represents transformational acquisitions. MAXIMUS has not undertaken an acquisition of this nature, but it's certainly something we would not shy away from for the right property at the right price. Our M&A objective is to find targets that enable us to build enduring, sustainable organic growth by continuing to build scale, enhance our clinical and digital capabilities, extend into new adjacencies and seek brand-new growth platforms. As a management team, we believe that continued growth relies upon strong governance and good governance starts at the top with how we govern ourselves. As such, over the past year, MAXIMUS has met with many of our shareholders to understand your priorities related to environmental, social and governance, ESG matters. As well as our material ESG interests, such as human capital, data security and privacy and governance. As a result of your feedback, we modified our Board of Director makeup, implemented an anti-pledging policy with respect to our stock. And as you may have seen, redesigned our proxy to be a more engaging and intuitive document. As part of our ongoing efforts to reduce our carbon footprint, we are piloting the conversion of our facilities to LED lighting in our federal citizen engagement centers. We look forward to disclosing additional efforts and impacts. Finally, at our upcoming annual meeting, shareholders will have the opportunity to vote to remove the staggered board model, declassifying our Board of Directors, such that all directors will be elected annually. We thank you, our shareholders, for your frank feedback and support. In summary, I'm pleased with our continued progress on management's strategic plan to lead a digital transformation, grow our clinically related services and expand in key priority markets and adjacencies, driving our strategic trajectory into the 2020 fiscal year. We look forward to continued engagement with shareholders, clients and employees. And with that, we'll open up the line for Q&A.

Our first question comes from Charlie Strauzer with CJS Securities.

I know it's a bit of a moving target, but can you share what impact you're assuming from the Australian bushfires and coronavirus kind of on a go-forward basis for the year?

Absolutely.

Sure, Charlie. Before I answer that, I want to make a slight correction. The cash flow from operations number in the press release and presentation is correctly stated at $87.3 million. Apologies for the mix-up. Now, regarding your question, while both situations are temporary, it is difficult to accurately gauge the true impact until we understand the extent, duration, and speed of the region's recovery. We felt it was useful for investors and analysts to model some potential impacts for the remainder of the year. Based on our current knowledge, and I want to highlight that there is still much uncertainty, we estimate that the effects of the issues in Australia could be between $0.07 and $0.15 on a diluted EPS basis for the rest of the year. It's essential to keep in mind that the situation in Australia is fluid. As noted in my prepared remarks, the government has taken swift actions to ensure the safety of its citizens and facilitate a quick return to stability. Part of this response includes a temporary exemption for participants in our program from job searches until March 6, which is causing complications for us. Additionally, Australia has closed its borders to travelers who have recently been in China, affecting the travel industry, particularly since visitors from China represent a significant portion of that market. Tourism has been a vital industry, helping job seekers return to work. As I mentioned earlier, the diminished need for job seekers in tourism roles will impact our business. However, without clearer insights into the extent, duration, and pace of recovery, we cannot determine the ultimate impact with certainty. Lastly, Bruce and I want to thank our team in Australia for their immediate response to support the local community by reaching out to customers and mobilizing resources like psychologists in the most affected areas. The company's MAXIMUS foundation in Australia also raised $50,000 for bushfire relief efforts. Does that answer your question, Charlie?

That's great. I have a follow-up question for Bruce. You mentioned the M&A concentric circles, and with the policy change you've indicated, will finding companies to acquire be a focus? What does the current pipeline look like?

Sure. We see a lot of opportunities that are brought to us. And I think I've said before that we're always looking at the characteristics of these deals in terms of what they really mean to the business in the long term. We want to make sure that as we look at specific opportunities, there are really no more than about two adjacencies from our core. They've got a reputation for quality, they can provide sustainable revenue and the appropriate growth rate, good sustainable net margins, at least in the high single digits. A strong cultural fit the company as well. So we've been very selective as we've looked at opportunities and further, we've tried to be a bit more proactive, if you will, in our M&A strategy. So as we're looking down the road, and we are identifying areas where we can strengthen the company in terms of our technology assets and digital assets, where we can become more clinical in the work that we do, but also where we can get into new markets. We've begun dialogue with companies that may not currently be active in the market with the hopes that as things evolve over the coming years, they think about MAXIMUS as a home for a portion of their business. As it relates to specific policy, I'd be happy to address a little bit more on the OPM guidance that I mentioned in my remarks or any other potential policy shifts there. Of course, there have been the Medicaid block grant guidance that the administration has provided recently as well, which we can speculate about. So is there any more specific area of policy that you're interested in as it might relate to that strategy, Charlie?

No. I was just thinking just more in terms of the M&A company, types of companies you would try to buy that would support those new policies.

We believe that technology is a vital part of our operations. We provide technology-enabled BPO services to our clients, so we are interested in companies that can enhance our technology portfolio and help us offer more integrated end-to-end solutions. We are particularly looking for those that are innovative in their technological contributions. The digital landscape continues to grow rapidly, and we feel we have a strong competitive edge in our core programs. However, as Rich used to say, it’s essential to keep our technology continually updated. Additionally, we recognize that citizen transaction services and engagement will be crucial for government functions moving forward. Citizens now expect the same level of service from government as they do from traditional businesses. This highlights our focus on technology-enabled citizen services. Lastly, the federal market presents excellent opportunities, and the U.S. Federal Government remains a robust customer. We are actively pursuing chances to expand our portfolio in that area.

Our next question comes from the line of Richard Close with Canaccord Genuity.

With respect to the OPM memo, Bruce, it sounds like that seems to be a little bit more of a longer-term opportunity. So if you can just sort of gauge that for us? Or just your thoughts there on maybe the size of the opportunity and timing as you have these discussions with states.

Absolutely. I wanted to provide some context regarding the memorandum I mentioned, which was released on November 27, 2019. It served as a follow-up and clarified the initial guidance that was provided by OPM in the federal register back in April 2019. This has been developing over time. The memorandum was sent to the heads of executive departments and agencies and specified that these executives need to certify that the personnel administration system for federally funded state administered programs they operate, known as grant made programs, complies with merit system principles. It also allows for the use of contractors, provided it aligns with prevailing state law. To clarify what these merit system principles are, they pertain to the government’s recruitment, selection, and advancement of employees based on merit, ensuring equitable compensation, providing training for high-quality performance, managing personnel separation due to inadequate performance, adhering to nondiscrimination principles, and eliminating political influence. We are excited about the flexibility this grants states and want to emphasize that this reinterpretation relates to a law that has been in place for 50 years, specifically the Intergovernmental Personnel Act of 1970. There are no requirements for states to change anything, but they now have more freedom. As for opportunities, we have engaged in several discussions with our customers. There is bipartisan interest and support for this change, as governors and agency administrators appreciate the flexibility it offers. It suggests new possibilities for integrating services that have traditionally been kept separate. Initially, we expect the opportunities will be somewhat incremental, relating to our core business activities. For example, a contract in a specific state might range from 5% to 10% of the opportunity value. As states grow more accustomed to this model and exercise greater creativity regarding its scope, we hope the opportunities will expand. However, we view this as an early-stage development, with things like Medicaid block grants and work requirements seen as small gains for now. Nonetheless, it holds significant potential for long-term benefits.

Okay, Lisa, I have two questions. The first is about housekeeping. Bruce, regarding the investments in the UK, are you suggesting there are upcoming contract opportunities there? And for my housekeeping question, did you mention that there is a $0.07 to $0.15 headwind from the fires and the virus for the current year? Essentially, would you have raised your diluted EPS guidance without those impacts?

I'll address both of those questions in reverse order. You are correct that we indicated a range of $0.07 to $0.15 for the impact. This does place pressure on our guidance, particularly on profit rather than revenue. However, we are just one quarter into the year, and we have a robust pipeline of opportunities. Our EPS guidance remains at a $0.20 range, which means there is potential for us to offset some of the impacts from this situation. It's important to emphasize that this is a temporary issue, and it's still too soon to fully assess the overall impact due to the ongoing uncertainty. We have not yet seen the complete picture as these events evolve. Regarding the UK, both Bruce and I have engaged with key stakeholders there, and we are investing significant time in discussions with our team. We believe there is strong demand for partners like MAXIMUS, who have a solid reputation and financial stability. We see several important opportunities that will help diversify our portfolio while utilizing our core competencies and technology assets. We feel that now is the right time to make a stronger investment in the UK and explore various opportunities, some of which may have longer timelines. Ultimately, our efforts could be crucial in expanding our presence in the UK, especially since we are a financially stable contractor.

Our next question comes from the line of Donald Hooker with KeyBanc Capital Markets.

Well, I want to ask about the Medicaid block grant regulation. You mentioned earlier, there's a lot of puts and takes there. And would love to hear your opinion as how that might impact MAXIMUS if it went into effect over the next few years?

Certainly, Donald. Let me share my insights on this topic. It's crucial to point out that the guidance on Medicaid block grants pertains specifically to a segment of the Medicaid population, primarily adults without children. These individuals largely gained coverage through the Medicaid expansion. Some have speculated that this block grant guidance might be a strategy by the Trump administration to encourage states that haven't yet expanded Medicaid for these groups by offering them additional flexibility. Historically, block grants can be a mixed bag; they offer more flexibility but also impose funding caps. States are understandably cautious as they weigh whether the trade-off of flexibility is worth the risk of having to shoulder more funding in a downturn, especially since Medicaid expenses can increase significantly in such conditions. It's important to note that the block grant does not cover children, individuals qualifying due to disabilities, those needing long-term care, or elderly individuals. Additionally, this flexibility reduces federal oversight of managed care organizations and allows states to tailor Medicaid benefits more effectively, such as non-emergency medical transportation and the EPSDT program for those up to 20 years old. There are a couple of states, like Tennessee and Oklahoma, that have expressed interest in this direction, while others are being more cautious. Many states are concerned about potential funding losses if federal dollars are restricted. Consequently, the implementation of this guidance may take a long time, with no state likely to receive a waiver before 2021. Changes in federal administration could alter guidance, and there may be anticipated litigation on this matter, as some parties have challenged the guidance, with the House taking a firm stance on this issue. So, we'll likely see a few small states start the process, but it’s uncertain whether it will progress effectively given potential legal challenges. Throughout this, we've excelled in helping our state clients customize programs to fit their needs. When considering Medicaid block grants alongside the OPM guidance we've discussed, there is potential to offer similar services at the Medicaid level if states choose that path. However, these opportunities aren't currently on the horizon, but there are many developments to monitor.

Super. Okay. And then maybe more on the nitty gritty of the numbers. The U.S. Health and Human Services segment operating margins continued to impress there. And I wonder, is there going to be a step down at some point, these levels are for multiple quarters now have been sort of trending above your guidance for that segment. How long can we hope for those margins to remain high?

You're right, those margins have exceeded our earlier expectations. It's important to note that our acquisition last year of the Citizen Engagement Centers contributed to the allocation of some home office and SG&A costs toward the Federal group rather than U.S. Health and Human Services. This change has been beneficial. Ultimately, our margins will depend on the amount of work we secure. We believe we have a strong portfolio, and we have been proactive in bidding and expanding that portfolio. Typically, we aim to bid around 10% to 15% above the long-term contract rates. If we successfully grow that business, we may see those margins trend closer to the 15% range we've discussed before. However, it’s true that we have maintained strong margins for several quarters, which reflects the quality of our operators.

Yes.

Our next question comes from Frank Sparacino with First Analysis.

Rick, could you provide the organic growth figure for the U.S. Federal Segment?

The organic growth for this quarter has been noteworthy. When we submit our 10-Q, we include a detailed chart in the MD&A section that shows the revenue, cost of revenue, and gross profit from the previous year. This year has been a bit complex due to the acquisition we made mid-quarter in the first quarter of fiscal year '19. To provide some context, our revenue last year for the federal segment was $216,987,000 during the period from October 1 to November 15, which I'll refer to as the pre-acquisition period. We estimate that the revenue we would have received had we completed the transaction at the start of the year was $98.429 million. So, considering a pro forma where the transaction occurred at the beginning of the first quarter of fiscal 2019, the figure would be $315.416 million. We can break this growth down into two parts: the significant growth stemming from the Census contract in its ramp-up phase, which accounted for $38 million, and an organic growth of $13 million from other contracts, which reflects the core business prior to the acquisition. This $13 million represents a 4.1% growth based on the pro forma number. The growth from existing contracts alone is at another 12%, so it's important to highlight both components of growth. We experienced solid organic growth of 4% in the core, along with substantial growth from the Census contract, as we have consistently indicated over the past seven quarters. You'll find these exact figures, including the cost of revenue and their effect on gross profit, in the MD&A section, Frank.

Great. And maybe, Bruce, on the provider management side, can you just talk in a little bit more detail? I'm not sure what's new in that market, both from an external as well as maybe internal perspective, if there's something new on the technology side that you guys have done, but maybe just a little bit more color there?

From an internal perspective, the Affordable Care Act introduced new requirements for provider credentialing, which has stimulated the provider credentialing, enrollment, and management marketplace. These requirements include specific conditions regarding the physical presence of certain providers in their facilities to complete the certification process for Medicaid. This has created a substantial pipeline of opportunities, as states must adhere to these requirements within a certain timeframe to qualify for federal funding. We are already a well-established provider of these services in several state marketplaces, which aligns with our organic growth strategy. Our technology was originally developed in response to the HITECH ACT, which mandated meaningful use payments to providers implementing EHR and EMR systems. This initial platform, deployed in Tennessee, allowed us to build a comprehensive database of the provider network, which we then evolved into a credentialing asset. We have continuously invested in and modernized this platform while exploring other configurable cost products. Our goal is to offer a suite of solutions that meet the needs and budgets of our customers. Additionally, this fits into a larger marketplace for Medicaid modularity solutions. As CMS encourages the modularization of previously large monolithic MMIS platforms, provider credential enrollment is a module that states can acquire separately. Some states are even collaborating through cooperative purchasing agreements to obtain these provider credentialing services and other Medicaid modules. We are optimistic about the market, confident in our competitive technology, and currently serve about half a dozen states with a robust pipeline of opportunities ahead.

Our final question comes from the line of Richard Close with Canaccord Genuity.

Great. I got two quick ones here. Rick, I was wondering if you could just go over again. The reason for the pull forward of that $10 million? And maybe on the change order push from second to third quarter, any type of magnitude there. And then I do have a follow-up.

Okay. Sure. Let me address the second half of that question.

Change order.

Yes. When we conducted the analysis at the beginning of the year and provided guidance in the third week of November, we anticipated a change order would be signed in the quarter ending March 31, which is the current second quarter. However, as we reevaluate, it appears that this change order will likely occur in the third quarter. Consequently, we believe the third quarter will be stronger than previously expected, while the second quarter will align more closely with the first quarter. The increase in revenue was primarily driven by our federal group, contributing about $0.01 due to an over-delivery on various contracts, mainly within the U.S. Federal sector and a few in the U.S. Health and Human Services business. After conducting a thorough analysis each quarter and reviewing our guidance, we concluded that it was largely a matter of timing, with items we expected for the second quarter coming in during the first quarter.

Okay, great. And just my final question here, Bruce, could you share your thoughts regarding the pipeline? Since we are in an election year, it can be difficult to predict, but what typically happens during an election year regarding potential contracts? Do you think people tend to pull back on the process? Any insights on this as we move through the rest of 2020?

It's a great question. I will address it at an international level as well. Initially, we believed that Brexit might hinder the U.K. pipeline. However, the recent election firmly positioned conservatism in power and has created a favorable environment for them, allowing them to confidently pursue pipeline opportunities that we thought might be delayed. This has been a positive development. Rick often emphasizes our adjudication rate, which is crucial for advancing the pipeline; it's one thing to have opportunities, but another to see them through the adjudication process and ultimately get awarded or rejected. Regarding the U.S., most of our work supports mission-critical programs that assist vulnerable citizens. As we shift from BPO opportunities to technology initiatives, much of this work continues to align with the core missions of various departments and agencies, whether that involves maintaining IT infrastructure or modernizing certain platforms. For instance, we mentioned previously about our work with the IRS, particularly in managing a portfolio of cybersecurity initiatives. When considering our range of contracts, it's hard to pinpoint specific opportunities that might be influenced by changes in the administration during an election year, as processes can slow down or be revised. While some programs could change based on the administration's interests, those that are fundamental, such as supporting Medicare and the student loan population, tend to remain stable despite political transitions.

Our next question comes from the line of Donald Hooker with KeyBanc Capital Markets.

I have a quick follow-up question. I've been wanting to ask about the employment contracts in Australia and other countries that are being affected by low unemployment. With the additional challenges from the fires in Australia, the coronavirus, and other issues, it seems like profitability is a struggle in that region. I assume other contractors are facing similar difficulties. Have you had discussions with your partners and government representatives about the terms of these contracts? It seems like the current situation is quite challenging, and I'm curious if there will be a need to adjust how these contracts are structured to make them more profitable for contractors when they renew.

Yes, let me start and then I'll hand it over to Rick for additional insights. One question we always consider is how this challenging situation is impacting us. We encourage our teams to manage their costs effectively while still providing the quality of service our customers expect. We consistently assess our performance in comparison to the competition, and I’m pleased to report that we’re performing quite well, often ranking as a top provider in our markets and under the contracts we offer. Everyone is facing difficulties, but we are committed to maintaining high-quality service and fulfilling our commitments, which has always been a fundamental principle for us. This approach allows us to enter discussions about contract renewals from a position of strength. As a result, one of our clients approached us and asked us to serve as the main point of contact for gathering feedback from industry peers on how to improve and revise these contracts, making them more appealing and fostering a more sustainable supply chain. We are actively working on this initiative. In addition to gathering input from various players, we are also having direct discussions with our clients. I'll now shift to Rick, as we see this as a collaborative effort.

Yes. I want to emphasize that we are not satisfied with our current margins. Our operators are effectively working to manage costs while fulfilling contract obligations. It's important to note that we conduct our accounting on a fully absorbed basis. This means that when you see the operating income, it reflects the allocation of all indirect selling, general, and administrative costs. In our business analysis, we assess gross profit, operating income before these costs, and net operating income. We take all of this into consideration. While the operating income margin is not where we would prefer it to be, we are also monitoring gross profit to ensure it covers indirect costs adequately. If it falls short, we will take further and more significant action.

And John, I want to add that our customers are keen on ensuring there is a sustainable market for these services and a stable group of providers. Our discussions have shown that they are highly engaged and concerned about their capability to provide essential services to their citizens with reliable suppliers. There have been instances with some of our government clients where market failures have occurred, leading to supply chain breakdowns, making them particularly attentive to these issues. Consequently, we believe our message is being received as intended.

Thank you. We have reached the end of the question-and-answer session. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.