dynamic, particularly in the federal civilian market, where certain opportunities have experienced procurement delays, scope revisions, or in some cases cancellation, as agencies continue to navigate evolving priorities, budget considerations, and the policy environment. As a result, and reflecting this dynamic, in some cases agencies are awarding more bridge contracts and short-term extensions, and opportunities are maturing more slowly. That said, we continue to view the underlying demand environment as constructive, with the latest total value of opportunities remaining substantial and supporting our long-term growth objectives. We strive to maintain a disciplined, target-rich pipeline that reflects opportunities where we believe there's a clear path to award and successful execution. Our year-to-date signed contract awards, as of the end of the third quarter, were $1.25 billion of total contract value. These awards translate into a book-to-bill ratio of approximately 0.5 times using our standard reporting for the trailing 12-month period. In addition, at June 30th, we had a balance of another $1.35 billion worth of contracts that had been awarded but not yet signed. Encouragingly, our balance of awarded but not yet signed contracts represents a significant step up from the last quarter and was driven primarily by successful, longer-term recompete activity. There are a number of attractive new work opportunities in our pipeline associated with H.R. 1, also known as the Working Families Tax Cut Act, which we believe will increasingly contribute to growth as we exit the fourth quarter. We adjusted our timing expectations as customers digest recently published interim federal rules and navigate their state legislative and program environments. Let me share what we're seeing at the moment with regard to Medicaid community engagement or work requirements. As planned, organic growth in U.S. services is expected to return in the fourth quarter as beneficiary outreach and engagement activity drives higher volumes on several existing contracts. Prospective customer discussions, while highly active, have progressed in many cases more slowly than expected, considering there are less than six months until the go-live date. There's little doubt that the complexity of the recently released interim final rule by CMS has created additional uncertainty for states as they determine how best to operationalize compliance requirements, particularly as they relate to medically frail beneficiaries within existing program structures. We know from experience that large-scale program changes involving technology, operations, policy, and constituent communications simply take time to implement, particularly when they affect programs serving millions of beneficiaries, and state government customers are deliberate with their decisions. That said, absent a change in statute, the underlying need for administrative support, beneficiary engagement, compliance monitoring, and technology enablement is expected to remain intact. Altogether, we believe that the demand for community engagement solutions remains positive, and as states continue to evaluate options, we remain optimistic that Maximus has an important role to play. SNAP, meanwhile, continues to advance in some ways more quickly than Medicaid-related opportunities. With more than 40 demonstrations of our Accuracy Assistant tool completed and 150 customer meetings, the level of interest and engagement has grown in recent months. We've responded to active procurements, submitted unsolicited proposals, and continue to engage with customers regarding approaches to improving program integrity and payment accuracy. Notably, the latest SNAP performance data indicates that payment error rates have not materially improved. The recently released USDA Fiscal Year 2025 Payment Error Rate, or PER, data showed a national average of approximately 10.6% compared to roughly 10.9% in fiscal year 2024. The newly released data reinforces what many states have been anticipating as they evaluate future financial exposure and operational priorities. While the PER varies across states, the overall results indicate that payment accuracy remains a significant challenge across much of the country. As a reminder, under H.R. 1, states may elect to use either the just released fiscal year 2025 PER or fiscal year 2026 PER due out in June 2027 when determining their SNAP benefit cost share, which becomes effective October 1st, 2027. However, regardless of their PER, states will be responsible for a 25% increase in the SNAP administrative cost share beginning October 1st of this year. This creates both a near-term administrative burden and a longer-term financial incentive to reduce error rates. Ultimately, we believe our combination of program expertise, delivery capabilities, analytical tools, and technology integration know-how positions Maximus well as states seek practical paths to improving accuracy while preserving the citizen experience. I'd like to turn to the pace of AI adoption, which continues to accelerate inside Maximus and with our customers, in alignment with our strategy and investments. Importantly, we're not simply reacting to customer requirements. We're helping shape practical AI-enabled solutions, often through our own internal use, that customers can adopt with confidence. Today, approximately 75 to 80 percent of the new bids and rebids in our pipeline contain explicit requirements or evaluation criteria related to AI. We are also seeing AI procurements become more sophisticated, with agencies placing greater emphasis on governance, security, transparency, human oversight, responsible AI practices, and the ability to demonstrate measurable mission outcomes. Increasingly, AI is no longer treated as an innovation add-on, but is becoming an expected component of modern service delivery and operational transformation strategies. Similarly, AI enablement through continuous innovation has become part of our operating rhythm inside Maximus. As just one example, AI-based improvements to core business processes such as IVR and script optimization, chatbot enhancement, and proactive text and email engagement in just five contracts yielded a better customer experience and a 3.5% operating margin improvement for that group. So, in addition to building AI into our solutions for new work, we are systematically updating existing operations that are designed to better meet our customers' needs. Further, through Maximus Ventures, our strategic investment arm, we continue to identify innovative and differentiated technologies that we believe can strengthen future customer solutions and create new pathways for growth by accelerating adoption across government markets. One example is our direct investment in SpectroCloud, which is an AI infrastructure management software provider rather than an AI model company, providing an advanced platform that helps enterprises, public sector organizations, neoclouds, and sovereign clouds build and operate production AI infrastructure with greater control over cost, security, and governance. We believe that capabilities like these are what allow government customers to move beyond experimentation and deploy AI securely at scale, particularly those in highly regulated areas, including defense. We view Spectral Cloud as one component of a broader ecosystem necessary to help government customers accelerate AI adoption while maintaining the security, governance, and operational controls that those mission environments require. Our objective through these venture investments is to bring differentiated capabilities to our customers, including preferred access and co-development arrangements where appropriate, creating strategic partnerships that are designed to accelerate deployment, strengthen our competitive position, support revenue growth, and increase customer value. Let me close with an update on the defense and national security market, which remains a priority in our long-term growth strategy. While many civilian agencies continue to experience procurement delays and budget uncertainty, we believe the Department of War procurement engine is functioning more consistently. Demand signals remain strong, and our engagement with customers continues to expand. As part of our strategic planning, we identified a total Maximus addressable market of defense-related opportunities of nearly $47 billion, only a small portion of which is reflected in our reported pipeline. Our objective is to ensure we are positioned to participate in that opportunity set, both through traditional and non-traditional procurement paths. In addition to the OTAs I mentioned earlier, I'm pleased that the hackathon platform we created, bringing government, industry, and academia together, has generated pathways to new programs of record for our customers. We are evaluating how we expand our capabilities, customer access and relevance, past performance qualifications, and market presence, particularly in advance of the arrival of opportunities we believe will emerge over the next several years. Customer intimacy remains paramount. Understanding mission needs, helping agencies address technical debt, and bringing modern technology-enabled delivery models to government customers through highly accountable performance-based arrangements are all areas where we believe Maximus can differentiate. Importantly, our defense and national security business is already demonstrating success with notable key wins at the Air Force and Transportation Security Administration. We continue to see evidence that large government customers are increasingly willing to consider capable alternatives outside of the traditional provider ecosystem. We believe this is a sustainable direction of travel and one that creates opportunities for differentiated companies with proven execution. More broadly, our strategy helps support a continued diversification of the company by expanding our exposure to durable growth markets while reducing concentration over time. In closing, we continue to see a healthy mix of opportunities and navigable challenges as we look ahead to fiscal year 2027. The procurement environment remains understandably uneven. certain legislative opportunities continue to evolve and customers continue to navigate a complex budget and operating environment. At the same time, we're encouraged by the momentum we're seeing in areas such as SNAP, AI-enabled solutions, and defense and national security. We are continuing to invest thoughtfully, strengthen our capabilities, and position the company for long-term growth. As always, our focus remains on controlling the controllables, delivering for our customers, executing with discipline and urgency, and creating sustainable value for our shareholders. And with that, we'll open the line for Q&A. Operator?

Thank you. We'll now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment as we poll for questions. Our first question is from Will Gildea with CJS Securities.

Good morning, and thanks for taking our questions.

Sure. Good morning, Will.

So just starting with the temporary contract modification at the VA, maybe can you just give us any more color on that and what kind of went into the VA's decision-making process to pause in sentence?

Sure.

Happy to start.

And to add to that, you know, we've been told by the customer that it's a temporary pause. I mentioned the current contracts last until December 31st. And we have seen, interestingly, a draft performance work statement issued by the DEA that's come out that has a comment period for the vendor community. It closes on August 12th. So we understand that they're moving ahead, obviously, with their plans for the next procurement. it becomes then a question of will that procurement potentially be completed in time to align with the December 31st deadline or not. And while it wouldn't be unprecedented to get something done in that amount of time, we also in the procurement have noticed that the volumes that they lay out for the community to respond to suggest that the base contract would begin in the middle of next year. So that leaves us presently working with information from the customer where they've indicated that the current incentive pause is 180 days in nature and would be completed in December, at December 31st, when the current contracts are scheduled to terminate, but also with the likelihood that we could see up to a six-month extension to the current contracts to align with the timing that we've seen in the performance work state. And as it relates to just the nature of the administrative action that they're taking that's led to this, I know we get the question, is this something that's uncommon? Do you see it from time to time? And I would just say that it's not uncommon for our customers to need to respond over the life of a contract. And these are long-term contracts, the changes in the legislative and the policy and the compliance environments. So while it's not common for a significant contractual term like this to be suspended, It's also not unprecedented, and our model actually is to support customers as their needs change through the administration of contracts over the life of those contracts. So another example that you'll note we've seen before is when customers modify their invoicing requirements in response to their own environment internally or their environment is such that they have extended periods where they're trying to get contract amendments executed and so forth, that can lead to delays in executions or payments on contract. We do that as just a part of doing business as a responsible government contractor, being flexible and adroit and being able to, you know, use our scale and our agility to help our customers manage through those processes and those times. So, and overall, honestly, I'd say that it's a contributing factor to the trust that our customers place in us to administer programs on their behalf. So that's why, you know, part of our business model is to have contracts for decades and to support our customers through times like this, we see this is no different.

Well, I might just add one more point, that these incentives have become a bigger contribution for us in our fiscal year 26 than they had been in prior years, which is really a testament to the investments we've made into the program over the past several years that have brought us to the high level of performance across the incentive metrics.

Yes, yep, that is super helpful. So just for, I guess, the initial early look at fiscal year 27 when you say, you know, our earnings power in Q4 is a good run rate for the rest of the year, you're kind of implying that, you know, it's likely that the pause will be longer than for 180 days. Is that – do I have the right idea?

Yeah, I mean, I think there's a range of scenarios there is what we said. So during a period where there's an absence of incentives, yes, I think that that Q4 run rate, which, as I mentioned, based on our full year guidance, that's 13% implied EBITDA margin in Q4. I do think that's a reasonable run rate for this period. I'd point out it's still inside the near-term adjusted EBITDA margin range that we laid out in May of 12% to 15%. And maybe go even further to say we still believe that 12% to 15% is an appropriate range for the business in the near term. So, you know, setting incentives on this one program aside, margins have been steadily increasing over the past several quarters, and we see continued opportunity to drive further technology and improvement to that.

Yep, yes. And then just on the preliminary VAPWS, can you discuss maybe the economics or market share? Are there any changes we should be aware of? Was there any language about incentives in it? Just, you know, anything about the initial RFP?

Yeah, well, the short answer is not – there really wasn't. So the draft PWS that's been released is Section B3 of a larger RFP that will, I'm sure, be released with all the other components to comprise the RFP in due course. As I mentioned, the VA is seeking vendor community input by August 12th just on the PWS. So there's really nothing there that speaks to the pricing mechanisms that they intend or incentive structures or anything. It really just lays out the scope of work, and I would say, you know, we like the fact that, first of all, the scope of work and the nature of the work and, you know, what the requirements are for the vendor and so forth are entirely consistent with the way the work is currently done by the vendor community and also the regions comprised in the PWS are all six regions. So that's not just the four domestic regions, but also the pre-discharge region as well as the international region. So it's a comprehensive PWS, it's consistent, and it appears from it that the areas that the VA is really valuing in terms of as it relates to the veteran experience, and that is making sure that we're able to schedule veterans efficiently and use their time wisely, only see them when they need to be seen, and ensure that we're doing everything we can to shorten our component of the overall cycle time that comprises the handling of the veterans' claims are all ongoing priorities of the VA, and they align perfectly to the areas where we've been making investments in capacity and technology as a company. So we feel good about what we're seeing, and we're eager to provide some feedback to the VA as part of the process.

That is helpful. Switching gears, you know, a nice step up in unsigned but awarded contracts. Maybe you can talk about what some of those opportunities are, and are you expecting them to convert to signed, you know, in the current procurement environment?

Yeah, you know, I will say that, first of all, I like the characteristics of what we're seeing here because what's in that awarded but unsigned category is really contracts of a longer duration. And I mentioned in, you know, my earlier remarks that sometimes you're seeing in an environment like this short-term actions, short-term extensions, and so forth. So kind of the durability of those awards is great. The second thing I would note is that we've been operating in an environment where the probability of protest has been pretty high. Every time something gets an award, inevitably, especially if it's a light award environment, vendors tend to protest, and there's no consequence often for protests, you know, so why not do it, right? If you're an incumbent, it extends your period of performance on your current contract. Without getting to specific contract names, I'm pleased that what we're seeing in the award of an unsigned category includes deals that have been through that protest process and successfully resolved. So they're really just pending the administrative process of contract execution. So that's why I felt confident to say, you know, we'll see that ripple through in sequential improvements to book-to-bill in subsequent quarters.

Sounds great. And then I guess turning pages, turning to SNAP and Medicaid work requirements, et cetera, you know, a couple quarters ago you guys gave an outlook for high single-digit growth in 2027. It seems like you're optimistic on Q4 growth, which is great. Just maybe you can talk about the puts and takes to hitting that outlook in 2027. Can you reaffirm that outlook? Yeah.

Yeah, I think as we look to 2027, first of all, you know, we've reiterated that this current fourth quarter of 26 we believe can achieve mid-single-digit organic growth in that segment. So that's an important turning point for the segment. and we do see that momentum carrying into 2027. Why don't I turn it to Bruce for some of the details behind the various policies.

Yeah, William, I'd love to talk about the policy side of it. The interesting thing is that, you know, there was a couple dozen Democratic states' attorneys general that sued the Trump administration over the recently released interim final rule for the implementation of Medicaid work requirements as it relates specifically to the definitions around medical frailty. and whether individuals who are medically frail, what additional information might they need to provide to demonstrate that they cannot comply with the work requirement. Well, the federal district court judge ruled, I want to say back on maybe the 29th of July, that he declined to stop the Trump administration, so enabled the Trump administration to proceed with the implementation of the requirements under the Act. So that, at least at this point, may be pending an appeal process, but that suggests that the work requirements will continue and need to be implemented as of January 1st, 2027. And recall also that that also begins the period where for the expansion population, the Medicaid expansion population, which is about 21 million people nationally, semi-annual redeterminations also begin. Now, that work doesn't begin on January 1st, because if you think about it, somebody who's determined eligible as of January 1st would then have to have their eligibility rechecked in July. Six months later would be the first time that happens. So we would see activities ramping up around that over the next calendar year. And then also because, you know, presently states now are scrambling candidly to figure out how do we operationalize the interim final rule, It's worth noting that for at least 2027, beneficiaries will be able to self-attest to medical frailty. So there is some time that states have, and the activities are funded on a 90-10 basis to help states come into compliance. So we have a year here where states will figure out what does this mean in terms of the additional attestation requirements? Will they need to be evidenced by a doctor's note? How do we do that within the construct of our health systems and maybe our managed care plans? All of that has to get sorted out, but the implementation is, as we understand it, proceeding according to plan. So we're out there having conversations with our customers, and as David has said, we're pleased that already in some of our current contracts we've gotten the green light to ramp up activities in the fourth quarter related to beneficiary outreach and engagement and so forth, and we'll expect that to continue. The other element, of course, of H.R. 1 is SNAP. I commented on that in my prepared remarks, and, you know, again, that's an area where, you know, the states have this looming deadline for having to shoulder an increased component of the administrative costs of the program beginning in October this year, and then increased benefit costs subsequent to that. So we continue to get significant interest from state customers and remain engaged with them on that front.

Thank you. Can you provide any more color? question for David. Can you provide any more color on the collections expected in Q4? What are the puts and takes to hitting your free cash flow guidance, if there are any?

Yeah. So the one area is DSO that I talked to in my preparator marks. As I talked about in some detail on last quarter's call, there's a large federal customer that we are catching up on collections from. As I said, it's a federal agency. It's a funded contract, so we have full confidence that the outstanding the invoices will be collected. And I shared an update in my remarks that since June 30th, we've had great momentum with this single customer collecting $245 million since July 1st. So our expectation is that that healthy pace will continue and bring us to that expectation we said of DSO dropping below 70 by the end of September.

Thank you. And with that in mind, the balance sheet is strong. You talked about your priorities for capital allocation, is M&A becoming a more important short-term focus? What are your criteria for acquisitions?

As I said, we consider both share repurchasing and M&A as important considerations over the On the M&A front, we do see it as an important tool despite market conditions as we look toward long-term organic growth. We want to make sure we are investing in capabilities, customer sets, those sorts of things that can unlock pipeline and high probability revenue synergies. So that remains something we're focused on. I think it's consistent with what we've been saying for several quarters now that we continue to evaluate opportunities on that front.

All right. I will leave it there. Thank you very much.

Thanks, Will. Operator, back to you.

Thank you. This does conclude today's conference. We thank you again for your participation. You may disconnect your lines at this time.