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Greetings. Welcome to Maximus Fiscal Year 2023 Fourth Quarter and Year-End Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jessica Batt, Vice President of Investor Relations for Maximus. Thank you, Ms. Batt. You may begin.

Good morning, and thanks for joining us. With me today is Bruce Caswell, President and CEO; David Mutryn, CFO; and James Francis, Vice President of Investor Relations. I'd like to remind everyone that a number of statements being made today will be forward-looking in nature. Please remember that such statements are only predictions. Actual events and results may differ materially as a result of risks we face, including those discussed in Item 1A of our most recent Forms 10-Q and 10-K. We encourage you to review the information contained in our recent filings with the SEC and our earnings press release. The company does not assume any obligation to revise or update these forward-looking statements to reflect subsequent events or circumstances, except as required by law. Today's presentation also contains non-GAAP financial information. Management uses this information internally to analyze results and believe it may be informative to investors, engaging the quality of our financial performance, identifying trends and providing meaningful period-to-period comparisons. For a reconciliation of the non-GAAP measures presented, please see the company's most recent Forms 10-Q and 10-K. And with that, I'll hand the call over to David.

Thanks, Jessica, and good morning. We are pleased to report a solid finish to fiscal year 2023 with 7.4% organic revenue growth and a 10% adjusted operating margin in the fourth quarter, reflecting healthy earnings tailwinds that we expect to carry on through fiscal year 2024. Last week, we announced that we divested several international employment services businesses in our ongoing effort to strategically shape the Outside the US segment and improve profitability and stability. We had robust signed contract awards in the fiscal year of $6.1 billion, which includes successfully defending key recompetes. Our contract backlog that we report annually stepped up again from last year to $20.7 billion, over four times our trailing revenue. We are executing on our stated capital allocation priorities with debt paydown yielding 2.2 times net debt-to-EBITDA at September 30, while also increasing our quarterly cash dividend to $0.30, in line with our commitment to grow the dividend with earnings over time. Our fiscal 2024 revenue guidance reflects mid-single-digit organic growth and our earnings guidance implies at or above 30% bottom line growth over fiscal 2023. Finally, the essential nature of our work means that we have excellent insulating properties during periods of uncertainty around government budget. Let me orient you to our revised definition of adjusted EPS. In addition to adding back intangible amortization expense, now and going forward, we are adjusting for gains, losses or other charges relating to divestitures. While these types of costs have not been large in fiscal year 2023, we are underway with reshaping the Outside the US segment and it's a process that could last for several more quarters. We have not added the costs related to the cybersecurity incident disclosed last quarter to our list of adjustments, but have provided a pro forma view excluding these costs for improved visibility. There is a slide in the presentation for today's call, which demonstrates the methodology change and identifies the cybersecurity incident cost in fiscal year 2023. For the full fiscal year, total company revenue increased 5.9% to $4.90 billion. On an organic basis, revenue growth was 7.1% over the prior year and consistent with the mid-single digit rate that we expect for the business. The growth drivers were a combination of new work as well as growth on existing programs in the US segment, which I'll add more color on in the segment discussion. On the bottom line, the full fiscal year 2023 adjusted operating income margin was 8.0% and adjusted EPS was $3.83. Three things to note on our full year earnings, which are highlighted on a stand-alone slide in the presentation today. Number one, the total impact of the cybersecurity incident in fiscal 2023 was $29.3 million or $0.35. We believe our analysis of affected individuals is complete, and the largest component of costs we've incurred has been related to the required notification. This means adjusted EPS for the full year, excluding the incident was $4.18 and at the high end of our guidance range of $4 to $4.20, excluding the incident costs. Number two, the second half of the year looked quite different from the first half as there were several sizable step-ups in earnings power of the core business as Medicaid redeterminations commenced in the third quarter in US services and volumes ramped on both the Veterans Affairs Medical Disability Exam contracts, which comprise the VES business and the student loan servicing contract in US Federal services. Number three, on a related note, it's worth highlighting the fourth quarter of this year in which we delivered strong sequential earnings growth as we had expected. US Federal Services benefited from ongoing higher program volumes that I just highlighted and US Services had a full period of Medicaid redetermination. Adjusted EPS for the fourth quarter was $1.29, and adjusted operating income margin was 10.0%. $0.05 were adjusted under our expanded definition and relate to a $2.9 million non-tax deductible asset impairment charge incurred in preparing the recently divested properties for sale. This charge was not contemplated in our fiscal 2023 guidance. Fourth quarter earnings also include a $0.09 detriment from incremental costs incurred related to the Q3 cybersecurity incident meaning, excluding the incident, adjusted EPS would be $1.38 in the quarter. Let's go to the segment results, starting with US Federal Services. For the US Federal Services segment, revenue increased 6.4% to $2.40 billion. All growth was organic and driven predominantly by continued ramp of volumes on the VA medical disability exam contracts as the overall program grows to meet client expectations. The operating income margin for US Federal Services was 10.4% in fiscal 2023 as compared to 10.4% in the prior year. It's worth noting, the segment continued its solid execution by delivering a 12.4% margin in the fourth quarter, which remains slightly above our expected margin range for this segment. For the US Services segment, revenue increased 12.7% to $1.81 billion. All growth was organic and driven by new work wins and our successful conversion of some short-term work into longer-term contracts. Examples include eligibility support contracts in Indiana and Arkansas, long-term care assessment work across the country and a multiyear unemployment insurance contract with California. The US Services operating income margin was 10.1% as compared to 11.3% in the prior year. Let me recap the margin trend of this segment. Last year, in fiscal 2022, the first half of the year was overweight from the last of the profitable short-term COVID response work, while the second half of the year was underweight. This year, the first half remained underweight until the paused Medicaid redetermination commenced in the third quarter, yielding margin improvement in the back half of the year as we expected. With the full period contribution of redeterminations US services realized an 11.6% margin in the fourth quarter. For the Outside the US Segment, revenue decreased 9.8% to $689 million. This is net of currency impacts, which reduced revenue by 4.6%. The other two declines were roughly equal parts organic contraction from lower volumes on employment services programs across multiple geographies and divested businesses that we announced in the second quarter of fiscal 2023. The segment realized an operating loss of $9 million for fiscal 2023, compared to an operating loss of $15 million in the prior year. This year's loss was attributable to the $14.4 million revenue reduction in the third quarter of this year tied to lower estimates for future outcome-based payments. Meanwhile, the segment broke even from a profit standpoint in the fourth quarter, a slightly better result than previously expected. We have acknowledged that this segment is not meeting our financial expectations and are executing focused efforts to reduce volatility. As announced last week and completed in the first quarter of fiscal 2024, we divested three more businesses. Specifically the Employment Services division in Canada, along with Singapore and Italy, which were exclusively employment services. Let's turn to the balance sheet and cash flow items. As of September 30, 2023, we had gross debt of $1.26 billion, and we had unrestricted cash and cash equivalents of $65 million. We paid down approximately $60 million of debt in the fourth quarter, which brought our debt ratio to 2.2 times at September 30 and near the low end of our stated target range of 2 times to 3 times. This is down from 2.5 times, 1 quarter ago at June 30. As a reminder, this ratio is our debt net of allowed cash to pro forma EBITDA for the last 12 months as calculated in accordance with our credit agreement. We had strong cash flows in the fourth quarter to finish the year. Cash flows from operating activities totaled $314 million and free cash flow was $224 million, near the high end of our previous guidance of $190 million to $230 million. Days sales outstanding, or DSO, were 60 days at September 30, 2023, compared to 62 days for the same day last year. Looking forward, our capital allocation priorities are unchanged. First, we fund organic investments, which are typically a combination of capital expenditures and expenses. Second, we maintain a dividend that we intend to grow over time with earnings and as evidenced by the recent quarterly dividend increase announcement to $0.30 per quarter. And third, strategic acquisitions intended to accelerate organic growth. We will continue to evaluate acquisition opportunities with discipline and our strong and improving balance sheet provides capacity should good opportunities arise in fiscal year '24 and beyond. In the near term, we will continue to feather in debt paydown as part of capital deployment. While we still believe 2 times to 3 times is an appropriate target leverage range, supported by our long-term contracts and high cash conversion. In the current interest rate environment, we have a bias toward the low end of 2 times. Looking forward, our guidance for a step up in earnings and free cash flow, absent M&A, would enable a debt ratio of 1.5 times by the end of fiscal year 2024. About 50% of our debt is fixed through interest rate swaps, so further de-levering efforts will reduce the higher-priced floating rate component. Let's go to fiscal year 2024 guidance. Revenue is projected to be between $5.05 billion and $5.2 billion. Adjusted operating income is estimated to be between $488 million and $513 million. The midpoints of those ranges imply an adjusted OI margin of 9.8% and within our target range of 9% to 12%. Adjusted EPS is projected to be between $5.05 and $5.35 per share. Based on the revenue guide, the $5.125 billion midpoint represents about 5% organic growth over fiscal 2023. The major drivers are first in US federal, higher volumes in the VA medical disability exam contracts and, to a lesser extent, new work across multiple categories. Second, in US Services, there is a full period of redeterminations, which as we've reminded before, have a disproportionate benefit to the bottom line. There are also expanded clinical assessment programs contributing to organic growth in the segment. The adjusted EPS guidance includes approximately $70 million of interest expense which equates to about $14 million less than in fiscal year 2023. I'll briefly share our forecast on segment margin. We expect the US Federal Services margin to be in the 11% to 12% range, which represents moving up a notch from last year in the pre-existing target range of 10% to 12% for this segment. We expect our US Services segment margin to be about 11%. Finally, we expect Outside the US to be slightly above breakeven for the year. We expect a more straightforward quarterly profile in fiscal 2024, reflecting the improved stability of the business compared to prior years. Our current view is that operating margin should improve across the year and therefore be modestly higher in the second half than in the first half. While redeterminations in US Services are helping more in the first half, we expect margin growth across the rest of the portfolio to contribute to the profile of more steady growth over the year. Lastly, we expect a small loss on sale in the first quarter tied to the completed divestitures, which will be excluded from adjusted EPS. From a cash flow standpoint, we expect free cash flow between $290 million and $340 million for fiscal 2024. We currently expect a slightly negative free cash flow in Q1 and as a result of seasonality and timing of certain payments, as has been the pattern in recent years. Some other assumptions around fiscal year 2024 include an estimated $88 million of intangibles amortization expense. The full year effective income tax rate should be between 24.5% and 25.5%, and weighted average shares should be between $62.2 million and $62.3 million. Before handing off to Bruce, I want to highlight our resiliency during periods of budget uncertainty with our government customers, particularly those comprising the US federal government. Anytime there is a focus on a potential shutdown, it can be a difficult environment to navigate from an outside perspective. For Maximus, our primary focus is assessing any impact that might be expected in our US Federal segment, which is about half the business. Having recently coordinated with our federal customers, we anticipate a significant majority of our contracts would be deemed essential. In fact, our current estimate is that less than 5% of our US Federal segment revenue could be disrupted during a shutdown, representing less than 3% of total company revenue. Therefore, we believe our guidance range can accommodate a temporary shutdown which remains the positive scenario in fiscal year 2024. And though we are cautious about potential collection delays during such an event, we have significant liquidity, including our $600 million line of credit, which was undrawn at the end of fiscal year 2023. With that, I will turn the call over to Bruce.

Thanks, David, and good morning. Our FY '23 results demonstrate the resilience of our business through unstable times and solid progress delivering on our strategy. We entered FY '23 in an unprecedented environment. Both the ongoing public health emergency and the deferral of student loan payments impacted revenue. Inflation rates were growing and hiring of critical health care workers was challenging due to the recent COVID-19 pandemic. The stable core of our business driven by strong rebid year and our essential role in government program delivery enabled us to end the fiscal year with solid financial results and a clear line of sight for FY '24. In May 2022, we presented our three to five-year strategy with specific areas in which we would focus and grow and supported by an addressable market of $150 billion in annual government spending. Only two quarters into the post PHE period, we are pleased with the performance of our segments in meeting their strategic objectives. Full year results for the US Federal Services segment are well within the target range of 10% to 12%, as are the fourth quarter results for US Services, which has a target margin range post PHE of 11% to 14%. Together, these segments drove our ability to meet our total company margin target. As David shared, the fourth quarter resulted in an adjusted margin of 10%, successfully delivering on our target of 9% to 12%. Over the longer term, our expectation for further improvement to an adjusted operating income margin of 10% to 14% remains. At Investor Day, we also communicated a commitment to increased growth in our US Federal Services Segment, success of which is evident in both our backlog and pipeline. Just two years ago, our US Federal Services Segment accounted for less than half of our backlog. Today, the Segment makes up two-thirds of our backlog. Finally, we committed to mid-single-digit organic growth. As David shared, organic revenue growth for FY '23 was 7.1%, and guidance for FY '24 shows promise for a continuation of this progress. During the quarter, we announced a 7% increase in our quarterly dividend, raising it to $0.30 a share. As we stated in the press release, this dividend increase demonstrates our confidence in the earnings growth reflected in our guidance. We remain committed to periodically assessing our dividend and raising it further in line with earnings growth. Now let's turn to fiscal year 2024, which is already off to an impactful start with recent changes made to the Outside the US portfolio. Earlier this month, we announced the divestiture of our employment services businesses in Italy, Singapore and Canada. Throughout fiscal year 2023, we shared our commitment to restructuring and optimizing this segment under appropriate terms and in a manner that aligns with our overall strategy. We have now reduced our OUS footprint by three countries in support of that goal. As I mentioned on our Q3 call, our portfolio shaping will focus on reducing volatility, concentrating our footprint, adding diversity to the customers we serve in country and broadening the capabilities we deliver in line with our strategy. We will operate in markets with well-established contracting processes and significant and growing addressable spending. As an example, now a decade into our partnership with the government of the United Kingdom, we have a more diversified portfolio and are delivering broader capabilities than ever before. Let me take a step back and talk with you about our strategy as we head into the new fiscal year. The three pillars of our three to five year strategy are supported by significant and growing addressable markets. The capabilities we bring to our mission of moving people and technology forward and our ability to deliver on customer priority, with differentiation and sustainable competitive advantage. With the relentless pace of technology, what was considered cutting edge two years ago is becoming table stakes. As the market moves, we are investing in anticipation of evolving customer needs. While the obvious example is AI in its many forms, there are others such as provisioning and managing secure hybrid cloud environments. Cloud-native development and digital modernization, more generally leveraging DevSecOps capabilities. With this evolution in mind, our teams are operating with agility, mapping our capabilities to the priorities of our customers right now and with an eye toward what is to come. Let me share a few examples. Within our technology modernization pillar, the strong pipeline of federal agency IT systems procurements like the IRS EDOS contract, reflects legacy environments requiring modernization, citizen demand for a more digital government and today's cybersecurity challenges. We've refined the priorities of our strategy to include greater emphasis on cybersecurity where we're focused on cyber automation,

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question is from Charlie Strauzer with CJS Securities. Please proceed.

Hi, good morning.

Good morning, Charlie. How are you?

Good. Thank you. Could we talk a little bit about the guidance and looking back at the August call, you mentioned kind of using Q4 as a good run rate proxy for next year. And I just want to just -- the ranges feel a little conservative and hoping to get a little bit more color and commentary behind that, if you don't mind.

Sure. I'll take it, Charlie. I'll start by saying we believe our official guidance here looks very much like our early view of the year that we did share in August. So that was based on our Q4 adjusted EPS forecast of $1.22 to $1.42. So $1.32 being the midpoint, and that would be $5.28 on an annualized basis. So that would fall between our guided midpoint and high end, which is $5.35. So we do feel good. We also said on the last call that we saw a good line of sight to mid-single-digit organic revenue growth and 10% adjusted OI margin, which is right on the mark of our official guidance here of about 5% organic growth and 9.8% adjusted OI margin at the midpoint.

Great. Thanks. And then looking at US Services, obviously, you're starting to see some good top line growth there. Obviously, it looks like there's some room to improve the margins there, and ultimately, the bottom line, when might you have some room to improve that?

Yeah. Great question. So stepping back, we guided them at 11% adjusted OI margin, which is at the lower end of the 11% to 14% range that we've set out for them. First, maybe I'll cover just kind of the redetermination impact there. While, again, I always say it's difficult to precisely estimate. We do continue to see that contribution in line with the $0.15 to $0.30 range that we've given before. And I think you can see that just by looking at the total US services OI, which in Q1 and Q2 of fiscal year '23 was more in the $40 million range per quarter. And then in Q4, it was at $55 million. So kind of a $15 million OI increase really driven by the redeterminations. To your point, that we have seen a lot of growth in that segment, revenue grew 12.7% in fiscal year '23. And some of that growth has come in at a lower than average margin and it's putting some pressure on the overall segment margin. And this, combined with our normal course business erosion has had a slight shift in the mix of contract profitability in the segment. But I would agree with you, and we're optimistic that there's room for improvement here. The segment is well suited for margin improvement with further adoption of technology, in many cases, which we control and also in natively higher mix of performance-based work. So we do see a good opportunity for improvement from here.

Great, thank you. I’ll join back in queue.

Our next question is from Bert Subin with Stifel. Please proceed.

Hey, good morning. And thanks for the questions.

Sure. Good morning, Bert. It’s Bruce.

Hey, Bruce and hey, David. David, I think this is really just sort of a follow-up question for you on the margin front. Can you maybe give some color on how to think about that $0.15 to $0.30 range on redeterminations? Is that just sort of operating closer to $0.30 in the first half of the year baked into guidance? Or is that an opportunity? And then just sort of longer term on the margin front, given the near-term range of 9% to 12% longer term, 11% to 14% sort of sitting here at 9.8% for this year despite what would seem like very accretive tailwinds from redeterminations in the VA business. So can you just maybe give us a walk on how to think through the margins getting up to at some point, a 12.5% number from where we are today?

Yeah. Great. I'll start and hand it to Bruce for comments as well. On the redeterminations, as I said, we are in that range, and I'm hesitant to give you a precise number because it's impossible to get too precise on it. But I think I would point out that as a result of the volume -- the higher volumes during this unwind period, we do expect a slightly higher margin in the US Services segment in the first half of our fiscal year '24 than in the second half as those volumes will moderate down somewhat. So as we previously said, the peak of those redeterminations would occur in the first half, that remains our assumption, and we're seeing it that way. Maybe I'll pass to Bruce for the longer-term margin.

Sure. As we've been saying, the midpoint of our FY '24 guidance implies a 9.8% margin, but we do have confidence in our ability to get to the 10% to 14% over time. So our three to five year strategy laid out the achievement of that with attention and focus in some very specific areas. So I want to highlight three of those areas, if I can. Two of the pillars of our strategy are technology modernization and future of health and the work associated with those tend to have higher margins generally. So as we get more of that work in the pipeline and convert that to backlog, that will naturally help us achieve our targets. And I would just say our pipeline -- I feel that our pipeline is well weighted in those areas. The second point would be that we've had some internal programs that we're focusing on that are really focused on ensuring that the company is set up for success over the longer term in the execution of the strategy, and that includes improving efficiencies. I mentioned -- I mentioned during my prepared remarks, the program Maximus Forward and how that's a balance of really rethinking and driving greater efficiencies in the business, but also making investments in our future. And those are important initiatives that we'll continue to execute on and that we would expect to see the benefit from as we roll through FY '24, but really more in FY '25. Then finally, we're continuing our efforts to properly shape and size it Outside the US portfolio in that segment's business. And we would expect that through our further actions there, we'd see an improvement in total company margins. So number of those things really taken together provide us the confidence that we can move into that range as we mentioned.

Okay. Got it. That helps. And maybe just a clarification before I -- before my follow-up. David, on the prepared remarks, you said you expect margins to build sequentially through the year. So I guess you're highlighting the fact that there are, I guess, better tailwinds in the second half even relative to that peak performance on redeterminations in the first half?

Yeah. And I'm glad you asked because that's a good thing to highlight that despite the fact that redeterminations are expected to contribute a little more in the first half than the second half, we see the rest of the portfolio more than overcoming that. And therefore, we do see sequential margin improvement in total over the course of the year.

Okay. Got it. And just for my follow-up, maybe, I guess, focusing on the other side on sales, your recompete profile is pretty low this year, and you have those -- several of those notable tailwinds that you highlighted between the VA, Medicaid and other new work. As you think about the potential to get from mid to high single digits this year, what would have to happen for that to play out? Is that just a function of new awards materializing faster EDOS task orders coming out? Are there specific items that you'd be watching that gets you to maybe above or below the 5% range when it's all said and done?

Sure. Bert, it's Bruce. I'll take that. You're headed in the right direction with your assumptions, your intuition on that. I mean as you said, what's really underpinning the growth as it presently stands is really strong performance in the VA Medical Disability Exam area as well as redeterminations. And certainly, further surges in volume and activity in those areas could contribute meaningfully to a growth rate higher than the current mid-single digits that we're seeing. At the same time, we're now kind of in the back half of the redetermination window, and that activity will come to an end in kind of the, I'd say, the May, maybe June time frame of 2024. So the likelihood that significant states would at this point, say, well, we need additional health and so forth is diminishing. That said, since the last time we were together on a call, I'm pleased that work in that area has picked up, and in fact, one of our state clients, our current state clients really asked for a great deal of more assistance, and that's reflected in the numbers that we've talked about today. So the underpinning, as you said, is exactly those in kind of those two areas. But I would highlight two others. You talked about pipeline. We're seeing a nice growth in clinical work in our US Services business as well as a solid pipeline of states that are progressing towards, what are called Modular Medicaid Management Information Systems, or MMIS systems. And that movement towards modularity continues, and in particular, one of the solution areas that we're focused on is Medicaid provider credentialing and enrollment. We provide those services to a number of states presently. There's a healthy pipeline for that type of work. And so we're going to continue to prosecute that, and we would think that further awards and conversion to backlog there could be beneficial to the growth of the company this year and certainly into next year. And then secondly is really -- you touched on the federal IT modernization area and more specifically, pipeline opportunities related to cloud enablement, cybersecurity, systems management needs and so forth across federal agencies. EDOS is a good example. We're pleased to see initial task order flow coming through EDOS and we feel like we're very well positioned for that work. I should note that we don't contemplate significant contribution presently from EDOS task orders in this fiscal year. So any further task orders or significant wins in that through that vehicle would be meaningful. But also, there are a number of procurements in that technology modernization space that have been held up with the protests that if they were to be resolved in the early quarters of this year and fall in our favor, we could see them contribute more meaningfully as well in FY '24. So it's really -- it's a mix of things. But David, is there anything further that you would add?

Yeah. Just to pull the string on one thing you mentioned, entering any year, we tend to have strong visibility into our revenue guidance, meaning more than 90% of our guided revenue is typically already in backlog. This year is no exception there. In fact, as you mentioned, we've really had two really strong years of rebid success. And we do see FY '24 having lower rebid volume, which provides an even higher degree of visibility than we may normally have coming into the year. So while there's a component of new business as always, that we assume there is potential for additional success there to drive further top line growth.

Very helpful. Thanks for the answers.

We now have a follow-up from Charlie Strauzer with CJS Securities. Please proceed.

Hi, thanks. Just a couple of quick follow-ups. First of all, on the cybersecurity breach, are you anticipating any more potential expense leakage into next year in your guidance?

Yeah, I'll take that. As I said in my prepared remarks, we're substantially complete with the analysis of impacted individuals and the largest component of the costs we've incurred to date have been related to those required notifications that came out of that. So right now, based on our best forecast of current proceedings and the associated costs, our guidance for fiscal year '24 does not contemplate material costs for further notifications or legal and consulting fees, which has been most of what we've incurred to date. However, we should point out that as detailed in our forthcoming 10-K, there are a number of class action suits that have been filed related to the incidence and we're not now able to determine or predict the ultimate outcome of any of those proceedings or provide an estimate or range of the possible outcome of those.

Got it. Thank you. And then just shifting gears to the international businesses, obviously, the divestitures. Divested a few of them already. Could we expect to see some more news on that front in terms of portfolio optimization, if you will?

Yeah, Charlie, it's Bruce. I'll take that. I mentioned in my prepared remarks that we really -- we feel that, that our work there is not done and it will continue into the coming quarters of this year. And at the same time, as I did on the last call, I wanted to kind of lay out what the characteristics are of the business that we see in the future outside the US. And the example I used in my prepared remarks was really with the United Kingdom and the work that we do there. It's a customer that we probably enter that market easily a decade ago, maybe a little bit more and have over time built a broad and increasingly diversified business in terms of the services that we provide. And while the Department for Work and Pensions remains our single largest customer, I've been pleased with our ability to move work into other departments and agencies. And UK has long been a government that has a very, I think, fair model and for contracting with the private sector. And we have found it to be a good customer to work with. And in fact, over time, have become really known as a strategic supplier in that market. So I think the net-net is that we're comfortable with a smaller footprint, concentrating our efforts in areas like that where we can offer the full range of services and capabilities that we have as a company. And most importantly, quite substantial markets. My latest recollection was that the UK represents a $6 billion addressable market, and it has meaningful growth characteristics that align with the strategic capabilities that we've outlined over our three to five year plan. So hopefully, that gives you a bit more color in terms of our direction of travel.

That's great. Thanks, Bruce. And then just a quick housekeeping for David. Interest rate assumption -- interest expense assumption for the coming years?

Yeah, sure. So as always, our -- all of our guidance is organic and that it doesn't include any M&A activity that hasn't been complete. So that means our interest forecast is consistent with that and therefore, reflects our excess cash flow paying down debt further over the year. As far as the rate goes, as a reminder, we're about half fixed rate through interest rate swaps. So for the half that is floating, we do use the SOFR forward curve to forecast what the rate will do over the year. And as we do pay down, we intend to pay down the floating rate, which is currently at a higher rate than what we think.

Got it. And just a sense of the average rate currently?

Currently, it's about 6%.

Great. Thank you very much.

Our next question is a follow-up from Bert Subin with Stifel. Please proceed.

Hey, thanks for the follow-up. Just to piggyback on that question on the interest expense side. I guess where do you want that to go? $70 million, that's quite a decline this year. But if I look back a few years, your interest expense was obviously much lower. But at what point do you stop paying down debt? And is something like share repurchases become more interesting?

Yeah, it's a good question. I mean, I think in my prepared remarks, I mentioned our current bias towards the low end of that two times to three times debt ratio range. We'll continue to use that range as the guidepost for what we want to be in the long term. While acquisitions continue to be our priority for capital deployment beyond dividends, they can be -- they're opportunistic in nature, right? So it's hard to predict when they come, so we will be evaluating over time kind of the benefit of having that dry powder available for acquisitions should they come as well as the interest rate environment and where we are relative to that two times to three times debt ratio. So those are kind of what we consider in that formula.

And Bert, I might also note that -- if I might, the corporate venture capital capability that I talked about in my prepared remarks, we envision those being relatively small bets that we have placed. So they wouldn't rise to the level that it would move that ratio meaningfully. But at the same time, it's an important other, I'd say, smaller element of our capital deployment strategy to increase our innovation and competitive advantage over time.

Got it. Okay. That helps. And then just my final question. Could you give us some, I guess, an update on where things stand on the VA exam business. We've heard from some of your competitors there. We've been really, really strong of late. And it sounds like the incentive fees have been pretty additive and should remain additive into next year. How should we think about VA exam business from here? Is there still a lot more growth in the pipeline? Or do you start to get concerned that maybe that turns the other way in late '24 or '25?

Well, I guess I'll start where you ended, which is I don't have that concern, but let me come to that through a bit more logic. So to back that, as you know, started in Q2 of FY '23, and then across Q3 and Q4, we saw a pretty meaningful step up in volumes. So today, we're operating at significantly increased capacity, and that's necessitated by the customer, and it's across the system. If you talk to our competitors or listen to them, you'd hear the same thing. The application rate is significant. The inventory levels are significant. In fact, there's publicly available data on the VA website that shows the current cases in inventory, and I think I'm correct in saying that that's a record high, north of $1 million. You can also follow backlog and backlog would be cases in inventory for more than 125 days. I have found it interesting, and I think reflective of the capacity that's been building into the system among the vendors, that backlog obviously is not increasing at the same rate as inventory, but inventory levels remain very high. So that means there's a lot of work that's waiting attention by the VA and then the examination vendors like us that are downstream. So we see -- as we look at FY '24, the revenue for the contracts that comprise our work in this area, increasing but increasing at a gradual rate over through the course of the year, not a significant spike, if you will, kind of a gradual increase. I want to note that the bulk of the hiring that we feel that we need to do to support that requested capacity has been completed. And other indicators that we look to really say what's beyond FY '24. A good indicator is what's the VA doing themselves. And they've hired a great number of employees, and there's public information out there about their intentions to further grow their headcount. In FY '23, they grew their overall head count by 20%, and they intend to hire an additional 4,000 employees in FY '24. So our view would be that they see the work here and the volumes that are required to get through that work continuing well into the next fiscal year as well. So we're confident in that. I was just commenting on the incentives and disincentives. I would just say that, that's a program is that the VA obviously had implemented, but has made adjustments to over time. And we feel that that's an area that they'll continue to fine-tune with the vendor community as they go forward. And so we don't have a significant reliance in our estimates for FY '24 on those types of payments.

Thank you.

Sure.