Q1 2024 Maximus Inc Earnings Call

Participants

Jessica Batt; Vice President of Investor Relations; Maximus, Inc

David Mutryn; CFO; Maximus, Inc

Bruce Caswell; President and CEO; Maximus, Inc

Charlie Strauzer; Analyst; CJS Securities

Bert Subin; Analyst; Stifel

Presentation

Operator

Greetings and welcome to Maximus fiscal 2024 first quarter 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jessica Batt, Vice President of Investor Relations and ESG for Maximus. Thank you. Ms. Bauer, you may begin.

Jessica Batt

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 believes that may be informative to investors in gauging 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.

David Mutryn

Thanks, Jessica, and good morning. We are pleased to report a strong first quarter as well as an improved outlook for margins, earnings and free cash flow for the full year, our operational performance has been excellent, and our dedicated teams are meeting our customers' increasing demand in complex areas, including Medicaid redeterminations and veteran exams. The business is on solid footing with the ability to be resilient in an environment with budget uncertainty and capable of further margin expansion on top of demonstrated progress so far.
Moving to results. Maximus reported revenue of $1.33 billion for the first quarter of fiscal year 2024, which represents 6.2% year-over-year growth. Organic growth was 6.9%, driven by expanded programs in the U.S. Federal Services segment and a combination of resumed and expanded programs in the U.S. Services segment, adjusted operating income margin was 9.9% and adjusted EPS was $1.34 for the quarter, which compares to 7.9% and $0.94, respectively for the prior year period. Earnings exceeded our forecast for the quarter, driven by performance across the segments.
I'll turn now to commentary on each for the U.S. Federal Services segment, revenue increased 9.5% to $677 million, which was all organic and driven by volume growth on expanded programs, including the VA medical disability examination or MDE. contract. The operating income margin for the segment was 10.2%, the prior year's first quarter's margin of 8.3% largely reflected hiring in advance of the VA volume that are now flowing through our operations segment income results for the first quarter of this year, aligned to our previously communicated expectations for an improving margin across the full year.
For the U.S. Services segment, revenue increased 11.5% to $490 million and was also all organic. The drivers were the resumption of Medicaid redetermination activities as well as expanded programs in eligibility support and clinical services. As a reminder, the redetermination activities are helping the top line, but have a disproportional impact to the bottom line due to improved operating leverage.
Us Services operating income margin was 13.5% in the first quarter of this year. The margin of 8.6% in the first quarter of last year reflected paused re-determination activities. We view the 13.5% margin this quarter as a high watermark for the segment for the near term and expect modest margin normalization in the remainder of the fiscal year.
Turning to outside the U.S. segment, revenue decreased 16% year over year to $160 million for the first quarter of this year. Of that, approximately 7% was attributable to divested businesses no longer in the portfolio. The other 9% was a combination of slightly lower volumes, unemployment services contracts and currency impacts. The segment broke even in the first quarter of this year as compared to an operating margin of 5.3% in the first quarter of last year, which reflected healthier employment services volumes. We remain focused on expedited efforts to reduce volatility and yield a desired portfolio capable of delivering consistent profitability. This process remains a priority for us this fiscal year.
Turning to cash flow items. Cash provided by operating activities was $22 million and free cash flow was an outflow of nearly $1 million for the quarter ended December 31st, 2023. First quarter cash flows reflected expected seasonality around timing of payments that we tend to have in this quarter. Our collections remained on target, and our days sales outstanding were a healthy 59 days. We are increasing our free cash flow expectations for the remaining quarters, which I'll speak to during updated guidance.
From a balance sheet perspective, we finished the December quarter with total debt of $1.32 billion and our net debt to EBITDA ratio improved from 2.2 times last quarter to 2.1 times as we continue to move towards the lower end of our target range of two to three times. As a reminder, this ratio is our debt net of allowed cash to adjusted EBITDA for the last 12 months as calculated in accordance with our credit agreement. As I articulated on the last call beyond organic investments.
Our priorities for capital deployment are maintaining a dividend growth with earnings and strategic acquisitions intended to accelerate organic growth. I should note that M&A opportunity evaluation remains an important part of our normal activities, and we remain opportunistic on deals that come to market in the future. In the meantime, we plan to continue to delever and build capacity. I'll finish with 2024 for updated guidance where we are raising earnings and free cash flow projections and reaffirming revenue guidance of $5.05 billion to $5.2 billion, adjusted EPS excluding intangibles, amortization and divestiture related charges is now projected to be between $5.20 and $5.50 per share.
This reflects a $0.15 raise from prior guidance. Adjusted operating income is estimated to be between $503 million - $528 million, which is an increase of $15 million from prior guidance. As a result of the improved earnings forecast, we are raising free cash flow guidance by $10 million to between $300 million and $350 million for fiscal 2024. The improved earnings outlook is driven by a higher margin expectation at the guidance midpoint, adjusted OI margin is 10.0%, up from 9.8% in prior guidance across the rest of the year. We expect a positive trend driving consolidated margins above 10% in Q3 and Q4, reflecting a combination of strong volumes on our portfolio of performance based contracts as well as disciplined cost management for the US services segment, we now expect the margin to run between 11% and 12% for the remaining quarters, which is notable because any temporary redeterminations surge benefit will be finished as we enter the back half of the year. And given the strong Q1, the segment should land near the high end of that range on a full year basis for the US Federal segment, consistent with prior guidance, we still expect OI margins between 11% and 12% on a full year basis meaning growth across the remaining quarters from this quarter's 10.2%. We still expect outside the US to be slightly above breakeven for the full year amidst our ongoing commitment to shape the segment to deliver consistent profitability.
A few other assumptions for fiscal 2024 include interest expense of approximately $73 million or approximately $88 million for intangibles, amortization of full year effective income tax rate of between 24.5% and 25.5% and weighted average shares outstanding between $62.0 million and $62.2 million.
Before handing the call over to Bruce, I'd like to emphasize that we are quite pleased with the current state and health of the business. We have multiple core programs that have scaled up significantly compared to this time last year. Each are demonstrating operational excellence, which are reflected in the segment margins for the domestic segment under the Maximus Forward initiative. We are making investments in systems and technology to ensure the work we do for our customers years from now either higher value or more efficient or a combination of both our business model is resilient in the face of potential negative outcomes resulting from current budget talks within the U.S. federal government, more specifically less than 3% of total company revenue may be impacted by a temporary shutdown more broadly from a budget standpoint, we are confident in the strategy of the Company being squarely focused on the areas of priority for government spending. I'll let Bruce expand on those thoughts. So Bruce, over to you.

Bruce Caswell

Thanks, David, and good morning. As David presented, we are pleased with fiscal year 2024 results thus far, and our increased earnings guidance affirms our continued optimism about the business.
In my closing remarks of our FY 23 Q4 call, I addressed the ongoing global conditions that were creating an unprecedented environment, highlighting volatility, uncertainty, complexity and ambiguity as common descriptors of the business and economic climate. These conditions continue to exist and are in some ways amplified as we enter an election period, I'd like to highlight how Maximus remains well-positioned to mitigate many of these risks through our business model and the underlying nature of the programs we are entrusted to deliver for our government customers. Our view remains that these strengths will enable continued delivery of our mid-single digit organic growth and margin expansion targets both near and longer term.
For the next few minutes, I'd like to further explain our view. First, I'll start with Maximus has significant foundational base of business, which emerges well-protected from a period of higher rebid activity. Many established entitlement programs make up this base and history has shown they stand at the test of various presidential administrations. This history, combined with our track record of strong operations gives us confidence in the stability and future of these programs regardless of present budget and election dynamics. A great example is our CMS related work where we help consumers gain access to critical health care, ensuring equitable access for those entitled to benefits has been a fundamental program function for Medicaid and Medicare since their enactment under Title 19 of the Social Security Act of 1965. More recently, we've witnessed the resilience of the Affordable Care Act more than a decade from its enactment with enrollment reaching a record 21 million for the 2024 plan year.
While national enrollment levels are correlated to our business performance over the longer term, they not the primary determinant. Rather, we operate a portfolio of contracts where our scope of services, payment models and activity specific volumes collectively drive business outcomes over time, we have differentiated our services to provide greater value to our customers in line with longer-term program trends at the state level.
This has included Medicaid expansion, tailored state plan options and the continued movement to manage long-term care, which often includes a requirement for independent and conflict-free assessments. I'm proud of our operational teams for stepping up to the unprecedented restart of redeterminations. And note that David and his team have done an excellent job in quantifying the impact our results are showing the analysis continues to be right on the mark. Our performance reflects our market-leading position in the administration of complex benefit programs and as a trusted partner as these programs continue to evolve.
Another great example of the durability of our business is the work we performed for the VA, where we help veterans and transitioning Service Members receive the benefits they've earned. These benefits are a core nondiscretionary spending obligation that receive broad bipartisan support as evidenced by the passing of the PACT Act in 2022 and the subsequent surge in applications that have driven inventory levels to new heights. We are focused on supporting the VA in their mission to provide every veteran the support to which they are entitled last week.
The Veterans Benefits Administration reaffirmed their increased hiring across 2024 of staff whose jobs include supporting the compensation and pension benefit decision process for years to come moving beyond entitlement programs. Technology modernization is a prioritized area of the Maximus business enabled by our qualifications that have been significantly bolstered over recent years and in a market that's well supported by durable federal spending drivers as one of our three strategic pillars. Ip modernization represents a $40 billion addressable market for Maximus at the federal level, growing in the high single digits annually.
The monetization trend will continue as government systems age and the complexity of challenges facing government increases and in our view will transcend administrations. Our work at the IRS is a good example and underscores our position as a top 20 federal IT contractor. We feel well positioned to respond as the need to modernize and secure government systems continues to be quoted by government officials as a top priority. Organic growth in our business is always driven by a combination of new work and volume growth on current programs. We have a solid track record of working closely with government clients to take on more volumes or responsibilities within current programs.
This fiscal year is no different where organic growth is forecasted to meet our mid-single digit target. Further, we've demonstrated time and again, our ability to improve margins as we scale the health of our core business, underpinned by a successful year of rebids and several programs scaling up adds to stability and certainty for the fiscal year. In fiscal year 2023, we were successful in securing more than $5 billion of total contract value in rebids. As a reminder, our September 30th backlog of $20.7 billion was over four times our trailing revenue at that time this fiscal year, we have very few scheduled rebids, providing strong line of sight to future revenues.
While on the topic of rebids, I'd like to touch on the recent announcement by CMS that it will recompete the contact center operations contract at some future point with the express purpose of including a labor Harmony agreement requirement. Maximus is currently in the second of nine available option periods on this contract that we have operated since 2018 since being awarded the current contract in 2022, we have outperformed customer service metrics and achieved record customer satisfaction levels while respecting occasional LABOR organizing activities, which have not interrupted operations in the Company's view.
The introduction of such a requirement is unprecedented in a services contract of this nature, particularly in light of its highly successful performance and demonstrated continuity of operations. We look forward to providing continued best-in-class customer service to our CMS customer and the American people, including tens of millions of seniors We are proud of our employees across seven states who have worked in partnership with CMS to provide exemplary service each day and whose job satisfaction has been evidenced through our annual independently conducted employee engagement surveys, no time line or further details have been disclosed by the government, which in due course will inform our further actions, as is the case with all procurements until the recompete process is complete, which typically takes a year or more for a contract of this size and complexity.
We expect to continue to work uninterrupted supporting our customers and nearly 75 million Americans. We continue to stay committed in our efforts to optimize our organization for the future and think critically about our delivery model through our Maximus FORWARD initiative, which we introduced last year. We continue to see success in identifying opportunities to innovate and are rethinking end to end delivery, including our supply chain to drive efficiencies and gain greater access to global talent. One corporate-wide objective of Maximus forward is increasing employee retention, which enhances quality on programs, reduces costly turnover and creates greater career opportunities for our staff.
Our teams have developed several initiatives to improve retention over the next 18 to 24 months and ensure we have the right talent to support our growth. I am particularly proud of one initiative that has already proven to reduce the costs associated with turnover. Last quarter. Within a matter of weeks, our teams successfully redeployed hundreds of employees coming off of a handful of projects onto new programs. These transition periods are never perfectly timed to end one day and begin the next with better processes and data, we can bridge our valued employees to their next opportunity while enabling training and upskilling in the interim courses available to employees range from soft skills such as leadership development, technical programs, including project management and agile certifications. It's exciting to see this employee-led initiative come alive.
The strength of our balance sheet is the final point I'll make about the stability and certainty of our business. Our debt ratio is now 2.1 times, giving us capacity to make strategic investments to accelerate growth as we identify them ahead of uncertain economic conditions, having robust cash flows, which we increased the guidance for this year. Healthy assets and an appropriate amount of debt are further evidence of the strength of our balance sheet.
Looking forward, we recently announced the hiring of our new Chief Digital and Information Officer. This position marks our evolution from more traditional CEO role and demonstrates our ongoing commitment to technology modernization. Derek Fletcher, who stepped into the role on January 29th will serve as a catalyst for leveraging digital tools and data to drive business growth while maintaining a resilient and dependable IT foundation. Under his leadership, our IT and operations teams will deepen collaboration with our government clients to harness data in a manner that optimizes processes and improves the citizen experience a priority for all government agencies.
On the topic of evolving our approach to technology.
Let me share some advancements on our journey with artificial intelligence. Following our early establishment of solid governance processes, we're starting to make progress on specific use cases designed to support our employees at one of our larger state customer contact centers. We're piloting two AI capabilities to enable our customer service representatives to train new hires faster and help them work smarter using a I the program is developing training simulations that will allow employees to learn in a safe space using real-life examples.
Simulations are a proven tool to improve retention and create a positive environment that encourages learning. We anticipate that as we build the simulations for various aspects of the program, time to train new employees will shrink by several days. Agent Assist is a second example of our team's work to leverage AI in an employee centric manner. Agent Assist listens to calls in real time and offers agents solutions to questions as they are raised by the consumer, reducing and possibly eliminating the need to search for information while carrying out the call Agent Assist will reduce wait times, improve first-call resolution by ensuring the correct information is provided in real time and enhance the citizen engagement experience with our team members, agent training and Agent Assist.
Our two capabilities meant to improve quality at our contact centers and enhance the work performed by our team members. Citizen experience is the first priority for our programs, and we view AI as a helpful tool to exceed expectations and further empower our team members and delivering exceptional service.
Now I'll turn to pipeline and awards. For the first quarter of fiscal 2024, signed awards totaled $422 million of total contract value. Further, at December 31st, there were $802 million worth of contracts that have been awarded but not yet signed these awards translate into a book-to-bill of approximately 1.2 times for the trailing 12 month period. Our pipeline at December 31st was $37.7 billion compared to $37.1 billion reported in the fourth quarter of fiscal 2023. The December 31st pipeline is comprised of approximately $933 million in proposals pending $1.01 billion in proposals in preparation and $35.7 billion in opportunities tracking of our total pipeline of sales opportunities. Approximately 77% represents new work. Additionally, 57% of the $37.7 billion total pipeline is attributable to our U.S. Federal Services segment.
In closing, we are pleased with the performance of the business during this past quarter and grateful for the tens of thousands of Maximus employees who have made this possible by the metrics. We are progressing toward our established targets of 10% to 14% total company adjusted operating income margin and mid-single digit organic growth at the segment level, our FY. 24 forecast for the US services and Federal Services segments places us comfortably within the 11% to 14% and 10% to 12% adjusted operating income targets we established with strong tailwinds, a well-performing core business, a healthy balance sheet and long term programs with proven resilience.
We are well positioned for continued execution on our three to five year strategy with our Maximus Forward initiatives well underway, transformational leadership driving greater technology, innovation and employee-driven initiatives to grow and retain talent, we are carrying strong momentum into future periods.
And with that, we'll open the line for Q&A. Operator?

Question and Answer Session

Operator

Thank you. We will now be conducting a question and answer session. Please limit yourself to one question and one follow-up question. If you wish wish to ask additional questions, you may reenter the queue. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions.
Our first question today is from Charlie Strauzer of CJS. Please proceed with your question.

Charlie Strauzer

Good morning. Given where we are as early as we are in this fiscal year. Can you talk a little bit more about the confidence levels behind the updated guidance?Thanks.

Jessica Batt

Good morning, Charlie guidance, Bruce and David is going to pick this one up and address it.
Dan Nichols.

Bruce Caswell

Thanks, Sterling. So on the guidance, I'll acknowledge that a portion of the raise is in the strong Q1 results and that strong business momentum does give us confidence for the higher earnings throughout the rest of the year as they think about what could transpire over the remaining quarters as far as risks, risks and opportunities given the typical length of our sales cycle, bearing in mind that we're already four months into the fiscal year. Realistically, there is more limited opportunity of new work, driving meaningful incremental change to the year. So the bright side of that is that we have high revenue visibility or in other words, there's limited upside, but also limited downside. We have just eight months remaining it set up opportunity there is for the remainder of the year are largely the same factors that we highlighted as driving Q1 results and that would be volumes, cost management and operational efficiency.
So just a few words on the volumes, 53% of our revenue now in the quarter, which will be in our 10 Q is performance based in nature. That's where we the volumes can really impact the top and bottom line tied to a sudden change in volumes really drives a disproportionate impact to the bottom line in either direction. And we have a disciplined approach to forecasting volumes. There's inherently some risk and opportunity that the volumes can drive up or down. But the good news is we're seeing high demand in many parts of the portfolio, which we called out the VAMD. volumes, Medicaid redetermination. But strong volumes are really driving that.

Charlie Strauzer

Great. Thank you. And then just lastly, on the CCO contract, can you talk a little bit more about the financials, characters and character characteristics of the contract?

David Mutryn

Sure.Yes. We don't typically disclose contract specific values, but for this contract. We have announced in the past at a total value of [$6.6 billion] over the base and nine option years, which we're in now. And so that means today, it runs in the $600 million to $700 million range of annual revenue, which is less than 15% of our total company revenue. And also worth noting it is a cost-plus contract. That means naturally it's lower than average for both growth and operating income margins compared to the rest of our portfolio.
Continued adverse.
Yes, you know, Charlie, I going to take a moment and address, I'm sure a topic that's on the mind inside of our shareholders and others. And that's the potential timing or the estimated timing on the on the rebid. And I just want to reiterate what I said in my prepared remarks that the procurement of this size and complexity can typically take up to a year or more to complete, and it's not uncommon for the process to take up to three years. So we the information we have is clearly what's been posted publicly and I will continue to follow it, but I just wanted to provide a little further context to that.
Thanks, Charlie.

Operator

Operator things, Drew, the next question. Thank you, operator. Next question, our next question is from Bert Subin - Stifel, Please proceed with your question.

Bert Subin

Hey, good morning.Morning, Barry. Good morning and dividend was up. Can maybe if we could dig a little further into the VA side of things. I'm just wondering if you could provide some more color on where things stand in that business? It seems like it was a material sales growth driver in the first quarter, the margins in the U.S. Federal segment were a little bit lower than what I thought. Did you receive any disincentive fees in the quarter? Was there anything sort of call out and then as you go through the rest of FY 24, or what's your view on the MP side?

David Mutryn

Yes. The that line of business is performing very well, as we look at the margin for Q1, we're really not related so much to that contract. There is a component of seasonality in our federal segment during the open enrollment period, which largely covers the first quarter where we see more revenue on cost-plus work that is tied to open enrollment so that that explains the some of the revenue on a sequential basis as well as the some of the margin profile we're saying I'll point out the margin and Federal was essentially in line with our expectation.
We said on the last call it 11% to 12% for the year, but a profile of increasing margin over the year. So we really just reiterated that expectation on this call, which we remain confident of those 11% to 12% for the year, recognizing it's below that in Q1, we actually see it rising above the high end of that 12% in the back half of the year. But the VA program volumes are certainly a part of that story.

Bert Subin

Okay. I mean, I guess I'm just trying to clarify, because the sub was almost 10% organic and this is quite healthy for that segment. And you guys talked in the prepared remarks about scale and operating leverage you get. So Tom, is there any is any I guess what changes as we go into 2Q, 3Q, 4Q on that front? Sales already seem to be pretty well.

Bruce Caswell

Yes. So the I guess, the mix of work by cost type will improve.
As it relates to the comment I made with the higher cost-plus portion in the first quarter as well, we just continued to grow our operational capacity and efficiency as a result as we continue to grow into higher volumes.
And I might add, Bert, that I spoke to the importance of our Maximus Forward program across the Company. And as you can imagine, we look at all our major programs and look at ways that we can do our work differently and more efficiently and how we can refresh and improve technology that going to improve the consumer experience, including, in this case, the veterans experience. And so really it's a combination, as David has said, a number of factors that give us confidence in the outlook for the remainder of the year. Just we're just constantly focused on driving greater efficiencies. And Bob, you know, ensuring top quality service that we can deliver in high volume in these complex programs.

Bert Subin

Okay. Got it. That helps. On the on the redetermination side, it seemed like a pretty good quarter for activity there. And from your comments, sounds like that's going to sort of moderate as we think through the rest of the year.
Bruce, you talked before, I think about the plan participants being more elevated and winning more state work on the redetermination side. So as we think beyond what we're seeing today and maybe future periods, is there a case for that run rate to be above that the cents per year that you previously talked about?

Bruce Caswell

You know, I would just say there continues to be a focus on from the administration, rightly on administrative disenrollments or procedural disenrollments. And I wonder one thing I would say that's different this quarter from prior quarters is a number of states that are making extra efforts to reach out to populations that may not have been responsive initially to numerous outreach attempts to improve awareness and to get them to engage and ensure that on their redetermination is obviously based on new information being submitted, their current financial state and so forth.
So what we've seen is, as a consequence of a number of our state customers, having us focus more and more on ensuring that those populations are really getting into the details of certain cohorts and certain almost down to like zip codes, right of getting to the populations to ensure that that different any procedural disenrollments are appropriate and obviously, I'll give individuals up if the appropriate opportunity to submit their documentation. So if anything that while the redetermination we talked about the wave cresting in the first quarter and I think that's true. I think we also feel like the efforts that we've got that we forecasted and that support our revised outlook for the full year reflect that ongoing work and in some cases, even expanded work in certain areas to ensure we're getting to that full population side, I wouldn't put a dollar figure on it as much as I would say on that dynamic in terms of redeterminations and what I would call their gradual reduction. It's baked into the guidance we provided.
But I'll turn to David for any further commentary.

David Mutryn

Yes, I think I think you nailed it. I think as we've as far as quantifying I cautioned many times that we can't calculate a precise number of the contribution, but it's clear that we're in the range. If you just look at the year over year, like growth in that segment, the US services segment. So I was very deliberate in my prepared remarks. To give some extra color on the US Services margin over the remaining quarters, probably a little more quarterly detail than we're used to. But knowing that this is a dynamic that we want to be as transparent about that. So I'll reiterate that we expect it to be in that 11% to 12% range for the next three quarters. And I think what's important to note there that we don't see any meaningful ramp down as we cross over the anniversary point the window of redetermination process.

Bert Subin

Got it. Okay. Just one last question. For me on it seems like, you know, there's obviously a lot of focus right now, the VA and redeterminations, but those things will stabilize over time. And it seems like the next leg of growth could be the modernization opportunity that Bruce, you talked about and several times and take a lot of that to the US federal side. That's an area where you may be less penetration and you're thinking about growing there organically and inorganically. You just give us a walk through what you think the organic opportunity is, perhaps the iDose contract with and with other agencies? And where do you think you need to maybe fill some holes inorganically over the next year to keep growing?

Bruce Caswell

Sure that your analysis is spot on and I will say in the sense that Tom, we do see the near-term opportunities being are related to modernization initiatives that are underway presently in our program and where there's a tight alignment between the on between the programmatic side of the business and the procurement side of the business ethos as a great example. I'll note that actually just yesterday, the Treasury Department released a really interesting report that says that on the IT modernization efforts within the IRS are likely over the course of 10 years to bring in an additional $561 billion of revenue to the agency.
So the ROI on the IP monetization investment spend is pretty compelling, and we're pleased to note has seen a number of task orders initially working their way through the pipeline and more to come. So it's good to see that program up and operating. I think as we look across this year and being an election year and knowing that there could be a change in administration in the next year. The key is on for agencies that have really kind of thought through and planned and timed the on procurement processes for their IT modernization initiatives.
In other words, the need is compelling and it happens in a somewhat cyclical fashion. I've been around the industry long enough to recall, the last time we went through IRS modernization. So it's kind of every couple of decades. The systems get aged, antiquated technology has advanced, and we have to go through monetization wave, those that will present the greatest opportunity to the contracting community.
Are those reps that have been, if you will, kind of baked in terms of the procurement strategy and the table set to be executed between now and the next year or so in terms of areas of opportunity where we feel like we'll see these waves in a number of civilian agencies, and we feel we're well positioned to pivot to the second half of your question, I would say, and I'll then I'll focus my former boss, Rich Montoni, who used to say we can never keep our technology saw sharp enough. And these right, there are areas where I think we could continue to build out our capabilities on somewhat organically but also inorganically, one that it comes to mind, I think for everyone in this community is cybersecurity.
And I think increasingly these days, the capability to help agencies Navigate on I want to say a I but I'm going to restrain myself because I think the key to effective AI implementation is data. And so helping agencies clean up and make use of their data and get it into a form where it can be valuable and inform their AI strategy with proper governance is another frontier. I think that all of the vendors in our community are look that's looking at addressing one way or another. So hopefully that gives you good insight. But we, as I said in my prepared remarks, continue to feel quite optimistic about IP monetization because our federal customers have said very clearly that it remains a priority for them for a boost to that order value.

Bert Subin

I was going to add right where you said about iDose, you said task orders are starting. Have you started work on that or are you just starting to see that type of activity?

Bruce Caswell

and there are task orders that are out being bid by the various vendors on the contract presently

Bert Subin

Got it thank you

Bruce Caswell

Sorry, did I think, Dave?
David, wanted to add.

David Mutryn

I'll just I agree that this is definitely an area of interest on the M&A front and thought I would just chime in as well, which I said on the last call, the free cash flow should enable us to delever down to about 1.5 times by the end of the year, absent M&A. So just pointing out that we do have capacity and appetite in the near term.

Bert Subin

Thank you, both. Appreciate the color.

David Mutryn

Sure, thanks, but Operator, back to you.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.