Prompt:
Human: 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 annual report on Form 10-K.
Management uses this information in its internal analyses of results and believes this information may be informative to investors in gauging the quality of our financial performance, identifying trends in our results and providing meaningful period-to-period comparisons.
And with that, I'll hand the call over to Rick.
The company's operating income margin was 11.8% for the quarter.
Our better-than-expected results were driven by the high level of COVID response work revenue in the U.S. segments and employment services work in Australia, which experienced higher-than-expected volumes of activities.
Since our February 4th call, we have continued to win a substantial amount of new work as MAXIMUS plays an integral role helping government customers serve their citizens during the pandemic.
Our revenue attributable to COVID response activities, such as contact tracing, unemployment insurance, CARES Act communications and vaccine communications were $242 million for the second quarter and $402 million year-to-date.
We project COVID response revenue will now range between $800 million and $850 million for the full fiscal year.
Our Australia Employment Services business achieved a high level of performance in the quarter as job seekers were able to find and sustain work as the Australian economy opened up.
The performance on this contract has improved faster than we projected, resulting in higher second quarter revenue and profit for our Outside the U.S. segment.
The organic growth rate for the second quarter of fiscal 2021 was 12.8% or 29% excluding the census contract revenue reduction.
Results for the quarter included one month of Attain operations from the acquisition date of March 1st, which added approximately $20 million of revenue and $3 million of operating income after the expense related to amortization of intangible assets.
I will now take you through our segment results, starting with U.S. Services.
Second quarter fiscal 2021 revenue in the U.S. Services segment increased to $448.2 million, driven by an estimated $175 million of COVID response work.
The segment operating income margin was 18.5% and reflects better-than-expected operating results for the COVID response programs that offset the significant revenue and profit headwinds to some core programs related to the pandemic.
The segment continues to be affected by the pause in eligibility redeterminations for Medicaid and the timing of some core programs returning to pre-pandemic levels remains uncertain.
I would like to emphasize that we cannot predict the relationship between core program improvement and the conclusion of the COVID response work.
Our full year expectations for the U.S. Services segment remain unchanged with a 17% to 18% full year operating margin predicted.
Revenue for the second quarter of fiscal 2021 for the U.S. Federal Services segment decreased to $330 million due to the conclusion of the census contract, which contributed $133 million less revenue this quarter as compared to the prior year period.
As I mentioned earlier, segment results included a 1-month contribution from Attain of approximately $20 million.
Excluding census, organic growth for the segment was 13% and driven by an estimated $56 million of COVID response work revenue.
COVID response work continues to backfill some of the temporary pandemic related shortfalls created by reduced volumes, revenue and profit from accretive performance-based contracts in this segment.
The operating income margin for U.S. Federal was 7%.
We announced two acquisitions in the quarter for U.S. Federal services.
As we disclosed on March 1st, Attain is estimated to contribute $120 million to $140 million of revenue for the seven months of the fiscal year.
The pro forma trailing 12-month adjusted EBITDA for Attain is approximately $32 million, which indicates Attain is expected to be accretive in fiscal 2021.
We present adjusted EBITDA in the management's discussion and analysis section of our Form 10-Qs and 10-Ks.
The full year segment operating income margin expectations for the U.S. Federal Services segment has improved from 6% to 7% previously forecasted to approximately 8%.
This is before including the acquisition of Veterans Evaluation Services or VES that we announced on April 21st, with an expected close date in our third fiscal quarter.
Due to their fixed price nature, the VES contracts will naturally carry an operating income margin that is greater than our U.S. Federal historical average over the past three years.
Adding NBES, our full year fiscal 2021 guidance for the U.S. Federal Services segment improved to between 9% and 10% for segment operating income margin.
Turning to Outside the U.S. segment, revenue for the first quarter of fiscal 2021 was $180.9 million.
This segment experienced the most pronounced negative impacts from the pandemic, and last year's second quarter resulted in an operating loss of $26.7 million.
This year, the segment's second quarter operating income was $15.1 million, and the margin was 8.3%.
As I mentioned, the better-than-expected results for the Outside the U.S. segment were largely due to Australia, where market conditions continue to create and sustain job opportunities in conjunction with our team, pushing performance and efficiency initiatives.
On our February four call, we noted that there was strong demand for employment services in the Outside the U.S. segment.
Our employment services contracts typically experience start-up losses in the early phases of their operations, and our prior guidance included our best estimate at that time.
Since then, we have won more new employment services work than we projected.
On April 26, we announced a significant win in the U.K. on a program named U.K. Restart, where we secured two of our preferred regions.
In addition to this win, the Outside the U.S. segment has exciting new employment services programs in Saudi Arabia, Sweden, South Korea and Italy.
Due to the start-up nature of these contracts, there will be start-up losses incurred in the third and fourth quarters in the Outside the U.S. segment as revenue ramps into the next fiscal year.
The U.K. Restart is responsible for the largest share of the incremental start-up loss.
These start-up losses are more heavily weighted to the fourth quarter of fiscal 2021.
The profitability of all of these Outside the U.S. start-up contracts is expected to exceed 10% over the life of the contracts, given their performance-based nature and the strong demand for employment services.
These contracts range in length from one year to six years.
We expect significant improvement to the financial contribution from these contracts in fiscal 2022.
With the start-up losses, the fiscal 2021 full year margin for Outside the U.S. is expected to be in the low single digits, with the fourth quarter swinging to a loss as activity picks up on the U.K. Restart program.
Let me turn to cash flow items and the balance sheet.
At March 31, 2021, we had $240 million of borrowings on our $400 million corporate credit facility.
We had cash and cash equivalents of $101.7 million.
DSO was 70 days at March 31, 2021, including Attain on a pro forma basis.
This compares to 75 days at December 31, 2020, and 72 at March 31, 2020.
Cash flows were strong in the quarter, with cash from operations of $181.6 million and free cash flow of $167.1 million for the three months ended March 31, 2021.
Given the two significant acquisitions we recently announced, I will expand on my usual capital allocation remarks.
The financing required for the VES transaction will result in initial leverage estimated to be approximately 2.7 times debt over pro forma adjusted EBITDA.
Pro forma adjusted EBITDA is calculated by using the last 12 months of EBITDA for MAXIMUS in accordance with our existing credit facility, plus estimated EBITDA for Attain and for VES, assuming the acquisitions were included in our operating results for the entire trailing 12-month period.
Traditionally, MAXIMUS has maintained low leverage.
We strive to be good stewards of shareholder capital and believe that we are appropriately selective in the acquisitions we pursue, focusing on those that we believe are both consistent with our strategy and will enable us to drive future organic growth.
On the April 21st VES announcement call, I indicated that we would pause significant M&A activity while we integrate Attain and VES.
We want to prioritize integrating these two respected companies.
Accordingly, we'll use most of our free cash flow for the next several quarters to pay down debt.
Our aim is to maintain our leverage ratio below 2.5 times.
We have long-term contracts and longer-term relationships with customers, solid rebid win rates and satisfactory new work win rates to assure reasonable and stable operating cash flows in the future.
Our expected future cash flows permit us to comfortably pay the debt service, to execute selective tuck-in M&A transactions, to invest in our business organically, and to pay the quarterly dividend, which we evaluate each quarter.
We will continue to search for and execute tuck-in transactions that are accretive, deliver good value and have a strong potential to drive future organic growth.
Guidance for the remaining half of fiscal 2021 is complicated by four factors.
One, the nature and longevity of COVID response work that we have been winning and performing.
Two, the two acquisitions we announced.
Three, the impact of the significant start-up contracts Outside the U.S. And four, the negative impact of the COVID pandemic on some of our core programs.
Let me address these factors in that order.
First, the COVID response work we have earned to date and project to earn in fiscal year 2021 is much greater than anticipated when we communicated our first quarter results on February 4th.
I as I mentioned, we are now forecasting $800 million to $850 million of COVID response work in the full fiscal year 2021.
We expect this work to diminish over time and accordingly, project a drop in the fourth quarter as compared to the third quarter.
Second, we have included the acquisition of VES in our guidance, assuming the transaction closes in the beginning of June.
When we announced the deal on April 21st, we disclosed the estimated revenue from June through September to be $160 million to $175 million.
There are one-time expenses of approximately $13 million for the VES transaction.
There is interest expense tied to the term loan borrowings that we will use to finance the acquisition.
We are still finalizing the intangible valuation.
But based on what we are seeing today, the VES acquisition will be slightly dilutive to earnings per share for the remainder of fiscal 2021.
Third, we have start-up losses planned Outside the U.S. with a more meaningful effect felt in the fourth quarter.
Fourth, we are assuming the negative impacts related to the public health emergency persist through the remainder of the fiscal year 2021, as signaled by the January 22nd letter from the then Secretary of the Department of Health and Human Services to the U.S. governors.
We are assuming the public health emergency will continue past our fiscal 2021 yearend.
All of that together, we now expect total company revenue to be in the range of $4 billion to $4.2 billion for fiscal '21, and our estimated diluted earnings per share to be in the range of $4.20 to $4.40 per share.
Cash from operations is expected to be between $400 million and $450 million and free cash flow is expected to be between $360 million and $410 million.
The guidance range is wider than typical at midyear, but is necessary to account for the volatility in the COVID response work.
The midpoint of our guidance range for revenue indicates an expected organic growth rate of 9.9% for fiscal '21 as compared to fiscal '20.
We also considered the impact of the COVID response work and the census contract and calculated an expected adjusted organic growth rate of approximately 6% for fiscal '21.
Our effective income tax rate should be in the range of 26% to 27% for the full fiscal year 2021 and weighted average shares outstanding in the range of 62.2 million and 62.3 million shares.
Our effective income tax rate is being impacted by the high level of income in Australia and the reduced income in the U.K. caused by the start-up contracts.
The $4.30 midpoint of updated guidance implies reduced earnings in the second half of fiscal 2021 as compared to the first half.
We anticipate a step down of third quarter earnings compared to second quarter results, which is primarily driven by some one-time costs for the VES transaction.
We anticipate an additional step down of fourth quarter earnings compared to the third quarter created by the increased impact of the start-up contracts in the Outside the U.S. segment and the reduced forecasted levels of COVID response work.
Let me make a few comments as we consider fiscal 2022.
The amount of revenue we expect from the two acquisitions is estimated to be between $700 million and $750 million.
While we do expect some of the COVID response work to continue into fiscal year 2022, it is extremely difficult to predict.
Equally hard to predict is the timing and impact of the public health emergency on Medicaid redeterminations and the resulting increase to MAXIMUS revenue.
Our forecasting precision remains limited due to ongoing volatility created by the pandemic as you see with the results announced today as compared to our estimates three months ago.
Bruce and I are grateful to our busy and hard-working teams around the world.
We are responding quickly to customers needing help with vaccine administration, working hard on large scale, existing and new employment services programs and beginning to integrate two important acquisitions with valued team members.
Since I transitioned into the CEO role in 2018, I've spoken about our 3-pronged strategy to accelerate our progress and drive the next phase of our growth through first, digital transformation within the Government Services market, enabling new solution offerings to address the mission requirements of our customers and improve overall service delivery across our operations.
This began with improved tools for citizen engagement and process automation and is evolving to include new capabilities in artificial intelligence and machine learning, natural language processing and advanced analytics to enhance our competitive position.
Second, clinical evolution to address long-term macro trends driving demand for independent and conflict-free business process management, or BPM services, with a more clinical dimension, while maintaining the foundational elements of our business, operating customer engagement centers and providing case management services.
And third, market expansion as we evaluate adjacent and emerging markets, organically grow the portfolio and acquire capabilities and contracts to establish a foothold in these markets.
We also consider our customers' longer-term visions for reengineering social program delivery models and, of course, macro trends.
We aim for expansion that's a natural complement to our core services globally.
Today, I will focus on how recent efforts are aligning with these three strategic priorities, including the two acquisitions, recent wins and COVID-19 implications.
As you know, in March we announced the acquisition of the federal business of Attain, furthering two of our primary strategic pillars.
By first, accelerating our digital transformation by strengthening our technology capabilities in application development and modernization, enterprise business solutions, cybersecurity and the data sciences, including advanced analytics and machine learning.
These capabilities address federal IT spending imperatives and priorities while also being applicable to our BPM solutions.
And secondly, expanding further in the U.S. Federal market into new departments and agencies, such as the Securities and Exchange Commission and Department of Homeland Security as well as within our common clients such as the Department of Health and Human Services.
While our integration is still in its early days, already I'm pleased to see how our teams are working together to address pipeline opportunities with our strongest capabilities and to share experience and skills to improve the solutions we're delivering to our federal customers.
As I spoke of briefly when we first announced the transaction, Attain brings innovation and experience in many competencies that are in greatest demand in federal, while MAXIMUS brought scale in highly desirable contract vehicles like Alliant 2.
Together, we can now address opportunities where neither company would have previously been competitive.
Further executing on our strategy, we most recently announced an agreement to acquire privately held Veterans Evaluation Services or VES, a premier provider of medical disability examinations, or MDEs, to the U.S. Department of Veterans Affairs, the VA.
This significantly advances our strategic aim of clinical evolution while meaningfully expanding our presence in the VA.
As Rick stated, we expect to close this transaction in the third quarter.
While our independent clinical assessments business has been growing at the U.S. state level through our 2016 acquisition of Ascend and subsequent organic growth primarily in Medicaid related long-term care assessments, VES' expertise will create an opportunity for such growth at the federal level.
As a result, the independent health and disability assessments and appeals portion of our business will comprise a larger share of our overall portfolio and pipeline, lending further credibility to our organic growth efforts with other federal departments and in nonfederal markets.
The acquisition comes at an important time for the VA as the Veterans Benefits Administration, or VBA, has been focused on reducing the inventory of exams that naturally has grown during the pandemic, while preparing for the future needs of veterans with qualifying conditions.
To that end, and as they've done periodically in the past, the VBA recently launched a market assessment to better understand industry capacity and capabilities.
Through our combination, we believe MAXIMUS and VES bring the credibility and quality of an established partner and ability to rapidly add clinical capacity and invest in technology innovation that will benefit veterans and the VBA.
Our goal is to both contribute to the timely reduction of pandemic related inventory and be the partner of choice as the MDE program continues to develop.
Our acquisitions of Attain and VES as well as Acentia in 2015 and Citizen Engagement Center Operations from GDIT in 2018 help us play a more meaningful role in the U.S. Federal market as we build scale, expand and diversify our customer base and improve our competitive advantage.
Concurrent with these acquisition efforts, we continue to win COVID-19 related work at the state and federal level, as Rick discussed in his remarks.
This includes the recently posted CDC Vaccination Hotline Award, illustrating the trust that government places in MAXIMUS based on our historical performance.
While COVID-19 work is generally planned to be shorter-term in nature, we remain well positioned to adjust as the pandemic related needs of our customers continue to evolve.
These efforts also allow us to meet new customers, expand into new areas of service with existing customers, and increase our impact on their behalf.
Through this work, we build longer-term references and past performance credentials that are advantageous in future bidding.
For instance, in areas like unemployment insurance, the demonstrated value of our model is creating opportunity for longer-term relationships with state Departments of Labor as they see the benefits of the flexibility and accountability we can provide in delivering outcomes that matter in more routine program areas.
Further, our ability to stand up solutions quickly during challenging times, using effectively our modular capabilities, makes event-driven work, a beneficial element of our business model in response to less predictable but regularly recurring government needs.
Our investment in the digital transformation of Citizen Services, coupled with our decades-long experience, have been recognized by our government customers during this pandemic as we responded to real-time requests to quickly deliver support and services.
Our Outside the U.S. teams are securing some exciting new wins as well.
As Rick mentioned, in the United Kingdom, we were recently awarded two prime contracts in our preferred regions to deliver the Restart program, which provides 12 months of tailored and community-based support for people that have been unemployed long-term and directly impacted by the pandemic.
This contract was procured through the CARES framework, which I mentioned in my remarks in the fourth quarter of the last fiscal year, and is used for contracting national employment support programs.
Adding emphasis to Rick's earlier point, start-up costs are typical with significant new contracts like this one.
Therefore, we anticipate Q3 and then Q4 earnings will step down sequentially as a result, followed by a subsequent rebound driving earnings estimates upward in fiscal year 2022.
These programs create long-term shareholder value and will operate within our expected corporate range of profitability.
This is not the first time we've accepted start-up losses for a longer-term and more significant future benefit.
In total, the two contracts, the maximum that could be won by a single provider, are valued at more than USD960 million, GBP690 million over the base and option periods totaling six years.
MAXIMUS U.K. will be recruiting more than 1,500 people to deliver the program.
We have a long history of supporting workforce services in the U.K., establishing our foothold in the U.K. employment and training marketplace in 2008 during the economic recession.
This solid platform, history of excellent performance and strong client relationships have provided the necessary credentials to expand employment focused programs, as illustrated by this award.
While this new work has provided some positive offset, our core operations in the U.K. continue to face disruption as a result of the pandemic.
This negative impact continues to be driven by temporary volume and revenue declines as well as a pause on face-to-face assessments.
Although we continue to face decreased volume across some of our geographies, in Australia we are seeing strong volumes as the economy reopens.
Demand is holding more than we anticipated during the holiday season and serves as an example of anticipated volume return as certain countries slowly begin to emerge from the pandemic.
All in all, we will remain dedicated to addressing COVID-19 implications with our customers while driving organic growth opportunities across the business.
In that spirit, I will now turn to new awards and pipeline as of March 31st.
As of the second quarter of fiscal 2021, signed awards were $1.11 billion of total contract value at March 31st.
Further, at March 31st, there were another $1.28 billion worth of contracts that have been awarded but not yet signed.
I should note that the CDC Vaccination Hotline and U.K. Restart contract awards were subsequent to our March 31st cutoff.
Let's turn our attention to our pipeline of addressable sales opportunities.
Our total contract value pipeline at March 31st was $35.6 billion compared to $31.6 billion reported in the first quarter of fiscal 2021.
Of our total pipeline of sales opportunities, 67.4% represents new work.
The hardest thing to get right in any integration is culture, and we've been very focused as an integrated leadership team on getting that right for all employees.
Our goal for our colleagues from both Attain and VES is that you will have more opportunities to take on new challenges to advance your careers and to be rewarded for quality work.
We have been fortunate to have been well positioned to respond to the needs of government at a very challenging time.
This has been possible only through the efforts of more than 35,000 colleagues worldwide and tens of thousands of delivery partner staff.
And with that, we will open the line for Q&A.
 Assistant:

Chosen response:
anticipates fiscal 2021 revenue will range between $4.0 billion and $4.2 billion.
anticipates fiscal 2021 diluted earnings per share will range between $4.20 and $4.40 per share.
for fiscal 2021, cash from operations expected to range between $400 million and $450 million and free cash flow between $360 million and $410 million.


Prompt:
Human: 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.
Management uses this information internally to analyze the 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.
And with that, I'll hand the call over to Rick and David.
As we announced in January, I will retire at the end of this month and David Mutryn will become the Chief Financial Officer on December 1.
I am confident that David is the right person to succeed me as CFO to help guide Maximus in the future.
It has been a privilege to be the CFO for Maximus and a great place to finish my career.
I am proud of all that we accomplished together as a team during my time here.
While we have been diligently reporting our contributions to shareholders, we have not discussed in this forum, the substantial commitments to ESG and our accomplishments in this area over the last five years.
Maximus is a unique company dedicated to delivering better than average returns to all stakeholders, while simultaneously aligned with core ESG principles by making vital government services more accessible to millions of people.
If you look at our progression on the MSCI framework, we began with a B rating in 2016 and currently hold a BBB rating for 2021.
While BBB is a good score, we believe there is more progress to be made.
Our commitment to ESG is a journey of continuous improvement.
We view our ISS governance score of 2 as solid and we are quite pleased with our latest ISS social score of 1, both as of October 2021.
Our recent ESG report includes our updated ESG materiality assessment and ongoing commitment to provide essential services to the most vulnerable citizens in the communities we serve.
Fiscal year 2021 was the dynamic here with the COVID pandemic creating both challenges and opportunities.
Maximus accomplished significant milestones this year, including winning and operating over $1 billion of COVID response work and closing two large and strategic acquisitions.
We completed another significant acquisition in early October with the student loan servicing business for $5.6 million U.S. Department of Education owned borrower accounts, which we have branded as Aidvantage.
The revenue increase was primarily attributable to COVID response work, which grew about $0.9 billion year-over-year and totaled approximately $1.1 billion for the year.
Revenue also increased as a result of the Attain Federal and VES acquisitions, which together contributed $323 million of revenue in the year.
On the bottom line, our full year operating income margin was 9.6% and diluted earnings per share were $4.67.
As you know, operating income margin is calculated after the expense for amortization of intangible assets, which increased significantly due to the two acquisitions that closed during the year.
Excluding the amortization expense, our operating margin would be 10.6% and our adjusted diluted earnings per share would be $5.19.
Let me point out a few items specific to fourth quarter results.
Number one, as expected, short-term COVID response work declined and totaled $225 million in the fourth quarter, which is $246 million less than in the third quarter.
Number two, the fourth quarter included a write-off of fixed assets, leased assets and deferred contract costs pertaining to a contract in its start-up phase in the U.S. Services segment.
While there are often puts and takes in our results, this was a $12 million detriment to pre-tax earnings or $0.14 diluted EPS, and the most significant reason, our results were below the midpoint of our guidance range.
Number three, implied in our previous guidance was the low fourth quarter tax rate, but our tax expense was slightly more favorable.
And number four, adjusting for COVID response work and revenue from the Census contract, our fourth quarter revenue showed normalized organic growth of 3.4% over the comparable prior year period.
I'll now take you through segment fiscal 2021 results.
For the U.S. Services segment, revenue increased to $1.66 billion as compared to $1.33 billion in the prior year.
The segment experienced strong demand for COVID response work, which contributed an estimated $618 million of revenue to the segment in fiscal 2021 compared to an estimated $129 million of this type of work in the prior year.
The segment operating income margin was 15.3% for the full year and 12.2% in the fourth quarter, which fell short of our expectations, due primarily to the single contract write-off I mentioned earlier.
Excluding the write-off, the U.S. Services margin would be 16% for the full year and 15.2% in the fourth quarter.
The segment's COVID response work helped offset the negative operating income impact on core programs, most notably, the pause in Medicaid redeterminations.
The public health emergency has had multiple extensions, most recently of which occurred on October 15 and will remain in effect for 90 days.
Despite the prolonged negative impact, the guidelines for assuming this work, as communicated by the Centers for Medicare and Medicaid Services, give us confidence that redetermination activities should resume in fiscal 2022.
For the U.S. Federal Services segment, fiscal 2021 revenue increased 15.9% to $1.89 billion.
The segment benefited from COVID response work and the two acquisitions, partially offset by the lower revenue due to the end of the Census contract.
COVID response work contributed an estimated $466 million of revenue to the segment in fiscal 2021 compared to an estimated $71 million of this type of work in the prior year.
As I mentioned, the two acquisitions contributed $323 million this year.
The Census contract contributed $448 million less revenue than in the prior year.
The operating income margin for U.S. Federal Services was 10% in fiscal 2021 as compared to 8.1% in the prior year.
The segment's fourth quarter margin was 9.2% and fell short of our estimates.
This was driven by several non-recurring investments made in the quarter that are expected to benefit our future operating results.
The Outside the U.S. segment experienced strong demand for employment services in fiscal 2021 as it rebounded from the most pronounced impacts of the pandemic.
Revenue for this segment increased approximately $200 million or 40% to $699 million.
Operating income was positive $20 million or a 2.9% margin compared to a $34 million operating loss in the prior year.
As we noted on the August earnings call, the fourth quarter of fiscal 2021 realized anticipated start-up losses, most notably, due to the U.K. restart program ramping.
Let me turn to the balance sheet and cash flow items.
As of September 30, 2021, we had gross debt of $1.52 billion and we had unrestricted cash and cash equivalents of $135 million.
The ratio of debt net of allowed cash to pro forma EBITDA for the full year ended September 30, 2021, as calculated in accordance with our credit agreement is 2.3 times.
This compares to 2.4 times at June 30, 2021.
As we stated on our third quarter call, we used our free cash flow in the fourth quarter to reduce our debt.
Cash flows from operations totaled $517 million and free cash flow was $481 million for fiscal 2021 as compared to $245 million and $204 million respectively for the prior year period.
In addition to improved earnings, strong cash flows resulted from the decrease in the investment and working capital of more than $100 million.
This was driven by good collections combined with advanced payments on new work and deferral of payroll taxes as permitted by the U.S. government.
Pro forma DSO was 68 days at September 30, 2021 compared to 77 days for the same day last year.
Our DSO target remains 65 to 80 days.
Turning to fiscal year 2022 guidance.
Revenue is projected to be between $4.4 billion and $4.6 billion.
Diluted earnings per share is projected to be between $4 and $4.30.
The midpoint of this guidance implies an operating income margin of 8.4%, which includes approximately $90 million of estimated amortization expense.
Excluding the amortization expense yields adjusted diluted earnings per share of $5.07 to $5.37 and the implied operating income margin excluding amortization expense is 10.4%.
We expect cash flows from operations to range between $275 million and $325 million and free cash flow between $225 million and $275 million.
We are projecting that the investment in working capital will increase in fiscal 2022 as the payroll tax deferral is eliminated and the new work matures.
We expect interest expense to be between $30 million and $33 million and the effective income tax rate assuming no change in U.S. federal rates should be between 25% and 26%.
Absent share purchases, we would expect the weighted average shares to be between 62.5 million and 62.6 million.
Turning to segment margins.
We expect our U.S. Services segment to be between 13% and 14% for the year.
We expect the U.S. Federal Services margin to be in the 10% to 11% range.
This expectation includes the Aidvantage program, which we expect to deliver margins in line with similar BPO contracts in our federal portfolio over time.
However, as with many of our contracts, we expect the Aidvantage contract to start with lower margins and increase as the program matures.
Finally, we expect Outside the U.S. operating income margins in the 3% to 5% range.
Let me provide some commentary on the guidance.
On our top-line, the first notable item is COVID response work, which began winding down in the later stages of fiscal year 2021 and is currently expected to contribute about $250 million of revenue in fiscal 2022.
COVID response work is predominantly tied to unemployment insurance support and vaccine administration with shorter periods of performance.
It is important to note the relationships that began with COVID work are now leading to some longer term work, particularly related to unemployment insurance support.
The second item is the start-ups Outside the U.S., including U.K. Restart.
We forecast that these start-ups will add $150 million of revenue to fiscal 2022, which is unchanged from our thinking on the prior earnings call.
The third item is acquisition.
There will be full period revenue contributions from the Attain Federal, VES and the Aidvantage acquisitions.
Combined, these three acquisitions make up approximately $1 billion of our forecasted fiscal 2022 revenue.
If you separate out the COVID work, the acquisitions and a small amount of Census contract revenue in fiscal 2021, our top-line guidance reflects normalized organic growth of 18% with a profile that increases over the course of the year.
This demonstrates that our core business growth engine is accelerating driven by new contract awards in fiscal 2021.
We were successful in winning new work awards in the year with a total contract value of $3.5 billion.
Of that, less than $1 billion was associated with COVID response work.
Our largest single award was the U.K. Restart Programme with a total contract value of more than $960 million over six years.
In addition, the U.S. segments were awarded several new contracts, all of which are longer term work.
On the bottom line, we anticipate a slow start to fiscal 2022, but also a solid line of sight to a strong second half.
There are two primary factors causing this.
Number one, the continued delays in our core programs returning to pre-pandemic levels creates depressed earnings in the first half of fiscal 2022.
As a reminder, we previously noted that the COVID work may decline before we see the corp programs return, which is what we are now experiencing.
Number two, the start-up contracts in the Outside the U.S. segment, most notably U.K. Restart, will continue to ramp with operating losses in the first half of fiscal 2022.
We continue to anticipate these programs will achieve breakeven by the midpoint of the year and significant financial improvement in the back half with performance in our corporate guideposts of 10% to 15% operating income margins over their lives.
The start-up contracts are progressing well and are currently meeting our expectations.
To quantify the steeper ramp in earnings, we forecast 60% to 65% of our operating income and earnings to be realized in the second half of fiscal 2022.
While our earnings profile suggests a valley for the first half of the fiscal year, we anticipate exiting the year at a strong run rate.
I noted the expected segment margin ranges earlier.
The margins in all three segments are expected to improve over the course of the year as the quarterly revenue profile is expected to be less deep than earnings.
We do not provide quarterly guidance, but I will share that the first quarter of fiscal 2022 is forecasted to look similar to the fourth quarter of fiscal 2021 after normalizing for the lower tax rate in the fourth quarter.
Our guidance does reflect our expectation that the public health emergency will conclude and that redeterminations will restart in our third fiscal quarter.
The Outside the U.S. start-ups are ramping up, and we have other portions of the fiscal 2021 new work awards that are scheduled to begin generating revenue in fiscal 2022.
Delays to any of these items, many of which are outside our control, may cause revenue and earnings to move to the right and to potentially fall short of guidance for fiscal 2022.
In closing, Bruce, Rick and I, along with the broader leadership team, are proud of how Maximus rose to overcome the unique challenges in the last two years and emerge a stronger company.
We are pleased to see the underlying organic growth improving as we come out of the pandemic and our recent acquisitions performing well.
On behalf of the management team, we offer Rick our deep appreciation for your leadership.
You have led Maximus through many accomplishments during your tenure as CFO, including leading our M&A strategy development with six major acquisitions, beginning with Acentia in April 2015; closing a new corporate credit facility and funding the VES acquisition through new debt sources for the company; helping navigate our international growth into new geographies as we grew from four countries to nine; pushing us to think and operate as a company at scale, including maturing our corporate back office capacity, which proved vital to supporting our inorganic and organic growth; mentoring and sponsoring many of our rising stars and building a talent pipeline not only in the finance division, but across the company at large; and championing our ESG strategy development and advancements.
I should note that when we ended fiscal year 2014, we had revenues of $1.7 billion and diluted earnings per share of $2.11.
Today, we are reporting $4.25 billion in revenue and diluted earnings per share of $4.67, a compound growth rate of 14% and 12% respectively.
Your expertise helped us continue our growth as a leading partner to government in the delivery of critical programs on a global scale.
Since the beginning of fiscal year '21, Maximus has completed four acquisitions, realized several large wins, transitioned leadership in our U.S. Federal segment and more.
I will spend my time today talking about the progress we've made toward executing the strategy I have articulated since April 2018, how these four acquisitions support those goals and some refinements we're making to that strategy.
On October 6, we closed a contract innovation with Navient Corporation, which the Department of Education Federal Student Aid or FSA approved on October 20 to begin servicing student loans in January 2022 under the new brand name Aidvantage.
As a long-term partner and provider of consumer engagement services to government, Maximus will focus on the end-to-end borrower experience and help fulfill FSA's mission, while remaining independent and conflict-free as we do not and will never provide loan origination, consolidation or collection services.
We view student loan servicing as an opportunity to apply our insights, expertise and quality-driven approach through support of both the FSA and the agency's customers, student borrowers.
Aidvantage is an extension of a long-standing partnership to support FSA and is in line with our core business.
This development demonstrates the availability of increased scope for companies that can successfully manage citizen interactions at scale and our ability to build on trusted relationships with government, a core component of our business model.
As you may recall, we have a position on the FSA NextGen contract vehicle to which this work will likely transition in future contract periods.
Our immediate priority is to successfully transition the 5.6 million Navient borrower accounts to provide stability and high quality service as student loan repayment obligations resume on February 1, 2022.
We subsequently will focus on the FSA's stated goals of improving the borrower experience through improved performance, transparency and accountability under the loan servicing contract.
To that end, our plan includes implementing best practices and continuous review, performance management and quality monitoring to promote greater transparency and maintain compliance.
Again, our role is solely to support student borrowers as they navigate repayment, and for many, options related to available authorized loan forgiveness programs.
As an independent and conflict-free partner to FSA, we will not own, consolidate or originate loans.
Meanwhile, the integration of our VES and Attain acquisitions are going as planned, operating as expected and delivering financial results that are consistent with our acquisition analysis.
To provide a bit more color, I'm particularly proud of our Attain colleagues' recent success, including securing the rebid and expansion of critical work for the Securities and Exchange Commission and supporting the U.S. customs and immigration services client at a critical juncture in their mission.
Likewise, our VES colleagues have achieved record volumes recently in scheduling veterans for critical disability benefit evaluations as that program moves closer to its pre-pandemic operating model.
As for our fourth acquisition in the United Kingdom, I'm pleased to share that Connect Assist, a market-leading provider of citizen engagement centers and digital services has joined Maximus U.K.
This combination strengthens our program administration capabilities and enables our expansion into adjacent markets.
As we previously lacked contact center capabilities in country, a pre-requisite for many government procurements.
Maximus now employees more than 4,500 people in the United Kingdom, including approximately 1,400 healthcare professionals across more than 270 locations, serving as one of the largest providers of employment, health and disability support program administration in the country.
The tireless work of our team this past year resulted in several new contracts and opportunities across the segments.
This includes approximately $1.1 billion of COVID response work to help governments respond to the pandemic.
Our ability to respond quickly and effectively for our clients has provided the proof points and enhanced our relationships now driving additional work opportunities such as unemployment insurance program support services for several states beyond the pandemic.
This fiscal year, we won more new employment services start-up work outside the U.S. than we projected.
This includes the notable U.K. Restart Programme where Maximus provides tailored support to help people back into work.
Thus far, thousands of people have been supported by our delivery of the Restart Programme with nearly 1,500 people finding sustainable employment since we began delivery at the end of June 2021, tracking very favorably against our forecast.
Turning to new awards and pipeline as of September 30.
For the fourth quarter of fiscal year 2021, full fiscal year signed awards were $5.62 billion of total contract value at September 30.
Further, at September 30, there were another $721 million worth of contracts that have been awarded but not yet signed.
Of the $5.6 billion of signed work, $3.5 billion represents new work awards with less than $1 billion associated with COVID response work, illustrating a healthy level of new work in our core business.
Let me turn our attention to our pipeline of addressable sales opportunities.
Our total contract value pipeline at September 30 was $33.9 billion compared to $33.6 billion reported in the third quarter of fiscal 2021.
The September 30 pipeline is comprised of approximately $8.8 billion in proposals pending, $1.4 billion in proposals and preparation and $23.7 billion in opportunities tracking.
Of the total pipeline, 69% represents new work opportunities.
It has been 20 long months since the start of the Public Health Emergency or PHE.
We anticipate that PHE will expire at the end of the first calendar quarter of 2022.
With this in mind, as David noted, we expect a solid second half of FY '22, which means, we should exit the year at a strong run rate.
Taken together, our view is that the market and company operating dynamics anticipated in the second half of FY '22 create a positive environment and momentum for the business.
These dynamics include not just the anticipated conclusion of the PHE and resumption of pre-pandemic activities, including redeterminations, but also the start-up contracts exiting that phase, new organic wins in U.S. Services coming online, the FY '21 acquisitions maturing in their integration and contribution and the benefits of a substantial new work pipeline.
I also want to address an area that has received national attention.
In September, President Biden signed an executive order requiring U.S. based employees or federal government contractors to be fully vaccinated against COVID-19 with limited exemptions for medical and religious reasons.
Earlier this month, per the President's direction, OSHA also mandated vaccination or weekly testing for employers with 100 or more employees, which goes into effect in January 2022.
We are planning for implementation of these requirements, which includes extensive employee education and resources, paid time off to receive a vaccination and frequent reminders regarding timelines and options.
As we have throughout the pandemic, we have prioritized employee safety and well being, and we actively monitor guidance and update our procedures accordingly.
Demand for talent is highly competitive.
Our implementation of these requirements may result in some workforce attrition and difficulty meeting our existing or future hiring needs.
That being said, Maximus has a strong talent brand that was if anything strengthened as a key differentiator over the past 20 months with the many benefits and programs we quickly implemented to support and protect our people.
During FY '21, we hired more than 42,000 employees around the world.
To support the training and development of our employees, over 165,000 online learning resources and tools are available, in addition to other development opportunities.
We continue to operate in a hybrid environment, recognizing that some employees are required to be on site due to customer requirements.
We are imagining new ways of working that put us in an even better position over the long-term to attract the necessary talent for our business through workplace flexibility and outside of historical geographical bounds.
On a final note, I am pleased that our execution on our three-pronged strategy of expanding our clinical business, driving digital transformation for our customers and the citizens we serve and expanding to adjacent markets has successfully led to balanced organic and inorganic growth since I became CEO and set the table for future organic growth in our expanded core and new markets.
With this as the backdrop and our current focus on delivering shareholder value through our FY '21 acquisitions, we have concurrently kicked off a three to five year strategy refresh initiative with participation from across the business.
Not only do we seek to define what the next phase in our clinical and technology journey will look like, but we are looking further over the horizon than we would in our annual planning process.
I'm excited about the energy and ideas that this collaborative process has already yielded and look forward to sharing more formal insights with our shareholders and the analyst community during our planned Investor Day in 2022.
And with that, we will open the line for Q&A.
 Assistant:

Chosen response:
sees fy earnings per share $4.00 to $4.30.
sees fy revenue $4.4 billion to $4.6 billion.
in fy 2022, excluding amortization, diluted earnings per share is expected to range between $5.07 and $5.37.


Prompt:
Human: We advise listeners to review the risk factors discussed in our Form 10-K annual report for the 2020 year filed with the SEC as well as the risk factors listed in our Form 10-Q and our Form 8-K filings with the SEC.
[Operator Instructions] Lastly, we want to invite you to attend our Virtual 2021 Investor Day meeting scheduled for Friday, September 17, where we will share more about our future growth plans and longer-term strategy.
Today, we will provide you with updates on several topics.
We will present our financial results for the second quarter 2021.
We will update our 2021 guidance, and we will summarize the status of our growth initiatives and outlook for the future.
Let me start with the second quarter highlights.
Last night, we reported adjusted earnings per diluted share for the second quarter of $3.40, with adjusted net income of $199 million and premium revenue of $6.6 billion.
The 88.4% medical care ratio demonstrates solid performance while managing through pandemic-related medical cost challenges that increased the ratio by 110 basis points.
The net effect of COVID decreased net income per diluted share by approximately $1.
We managed to a 6.9% adjusted G&A ratio, reflecting continued discipline in cost management, which allowed us to harvest the benefits of scale produced by our substantial growth.
We produced an adjusted after-tax margin of 2.9%, meeting our second quarter expectations.
Our six month year-to-date performance, highlighted by an 87.6% MCR, a 7% adjusted G&A ratio and a 3.4% after-tax margin were all squarely in line with our year-to-date expectations.
This allowed us to produce, as projected, 60% of our full year earnings guidance in the first half of the year.
And we accomplished all of this as we generated approximately 50% year-over-year premium revenue growth and successfully integrated businesses, representing approximately $5 billion in annual revenue.
In summary, we are pleased with our second quarter performance.
We executed well, delivered solid operating earnings and continue to drive our growth strategy.
Let me provide some commentary highlighting our second quarter performance.
First, I note that year-over-year comparisons are less meaningful than they would be in a typical year.
The second quarter of last year was the first full quarter of the COVID pandemic and was distorted by the significant positive net effect of COVID that characterized that early phase of the crisis.
In contrast, the current quarter was negatively impacted by the net effect of COVID.
In the second quarter, we produced premium revenue of $6.6 billion, a 4% increase over the first quarter of 2021, reflecting increased membership across our portfolio.
We ended the quarter with approximately 4.7 million members, an increase of 91,000 members over the first quarter of 2021.
Our Medicaid enrollment at the end of the quarter was approximately 3.9 million members, an increase of 69,000 over the first quarter of 2021.
This increase was due primarily to the continuing suspension of Medicaid redeterminations, although this growth catalyst seems to have moderated.
Our Medicare membership was 130,000 at the end of the quarter, an increase of 4,000, and in line with our growth plan.
Our Marketplace membership were 638,000 at the end of the quarter, representing growth of 18,000 over the first quarter of 2021 due to lower-than-expected attrition rates and membership additions during the extended open enrollment period.
Turning now to our medical margin performance in the second quarter by line of business.
Our Medicaid business achieved a medical care ratio of 89%.
While we are dealing with the impacts of the pandemic on utilization and medical cost, as well as the continuing temporary impact of the risk corridors, we continue to execute on the underlying fundamentals.
Our well-diversified portfolio of state contracts across all dimensions of the Medicaid product suite is performing well.
We continue to deliver high-quality care at a reasonable cost, particularly to high acuity populations.
The underlying rate environment is stable.
Our hallmark medical management capabilities continue to deliver appropriate clinical outcomes for our members, while achieving strong financial results.
Our Medicare results were excellent, having posted a medical care ratio of 87.6%.
We continue to produce excellent MCRs and margins in this portfolio of high-acuity lives in both our D-SNP product and the MMP programs.
Although our results were moderately depressed due to COVID utilization and despite the temporary risk score softness for the current year, the underlying results were squarely in line with our expectations.
Our Marketplace results have been significantly impacted by direct cost of COVID-related care as we posted a medical care ratio of 84.8% in the quarter.
Many of the new members we attracted were in regions disproportionately affected by COVID, including California, Michigan, Texas and Washington.
With nearly 500 basis points of pressure on the MCR in each of the first two quarters, we can and should achieve mid-single-digit pre-tax margins as the pandemic subsides.
In short, our second quarter and first half results across the entire portfolio continue to demonstrate our ability to produce excellent margins while growing top line revenue and successfully managing through the ongoing clinical and financial impacts of the pandemic.
Turning to our 2021 guidance, beginning with premium revenue.
For 2021, we now project premium revenue to be more than $25 billion, a 37% increase over the full year 2020 and a $1 billion increase from our previous guidance.
Specifically, our premium revenue guidance now includes Medicaid enrollment benefiting from the expected extension of the public health emergency period, and the associated pause on membership redeterminations, which we are now projecting through the end of the fourth quarter.
Recall, that for each month the public health emergency has extended, beyond the month of September, it increases our full year revenue outlook by $150 million.
Our updated guidance also contemplates the impact from retaining pharmacy-related premium revenue in California, New York and Kentucky due to postponement of, and changes to their respective pharmacy carve-out initiatives, and updated Marketplace revenue reflecting the strong enrollment and retention performance mentioned previously.
We expect to end 2021 with approximately 590,000 marketplace members.
We have excluded from our premium revenue guidance any impact of the Affinity and Cigna acquisitions.
We expect the Affinity acquisition to close in the fourth quarter, representing upside to our premium revenue guidance in 2021, and we expect the Cigna acquisition to close in January 2022.
Turning now to earnings guidance.
We are raising our full year 2021 earnings guidance and now expect to end the year with adjusted earnings of no less than $13.25 per share, an increase from our prior guidance of no less than $13 per share.
We remain on track for full year after-tax margins of at least 3%.
Specifically, the increase to our 2021 earnings guidance reflects our underlying outperformance, the increase in our revenue guidance and the associated margin, offset by a $1 increase in the net cost of COVID, which we now expect to be $2.50 per share for the full year.
We have been cautious in projecting our back half earnings due to a variety of exogenous factors.
The delta variant adds variability to any utilization forecast.
While highly contagious, the Delta variant disproportionately affects the unvaccinated.
Older and more vulnerable population cohorts have significantly higher vaccination rates.
As a result, the Delta variant cases result in proportionately fewer hospital admissions and lower per admission costs, moderating the potential impact.
In addition, it remains unknown how quickly and to what extent utilization will return to normal levels.
This will depend upon the strength of the economy, consumer behavior, provider capacity and the emergence of any new COVID variants.
There is an inherent level of uncertainty with regard to new marketplace member acuity levels and their susceptibility to COVID infection and the COVID-related risk-sharing corridors create an added element of variability.
Turning now to an update on our growth initiatives.
We continue to see many actionable opportunities in our acquisition pipeline, which remains an important aspect of our growth strategy.
Our M&A team is fully deployed and is working an active list of health plan targets in our core businesses.
Our acquisition strategy remains focused on buying stable membership and revenue streams, particularly focused on underperforming properties.
Our M&A integration team is also fully deployed and successfully migrating our acquired properties to Molina operating infrastructure and cost structure to ensure we deliver the earnings accretion we expected.
To date, we are on track to meet or exceed our earnings accretion commitments.
We continue to pursue to new Medicaid procurement opportunities.
We have contract winning capabilities, an aggressive in-state ground game and a winning proposal writing platform.
We are confident that we will continue to win new contracts that will contribute to our growth trajectory in 2022 and 2023.
Finally, some comments about the longer-term outlook for our business.
The current rate environment is stable and rational.
We now have confirmed data points to support the continued belief that the Medicaid risk sharing corridors, related to the declared public health emergency, will be eliminated as the COVID pandemic subsides.
Pandemic-related corridors have already been eliminated for the 2022 state fiscal years in California, New York, South Carolina and Michigan, with momentum toward similar outcomes in other states.
The current Medicare risk score shortfall phenomenon is temporary as our 2022 bids did fully account for the current assessment of next year's risk scores.
We continue to be bullish about the performance of our acquired businesses.
The operational integrations are proceeding as or better than planned, and we have high confidence in achieving our original accretion estimates and possibly even exceeding them.
In the context of the pandemic subsiding and our acquisitions maturing, the incremental embedded earnings power of the business as it exists today is meaningful.
With the increased outlook for the net negative effect of COVID, our incremental embedded earnings power is now more at $5 above our 2021 adjusted earnings per share guidance.
In short, our pro forma run rate after the natural relaxation of these temporary constraints would produce adjusted earnings per share comfortably in the mid-teens and an after-tax margin of approximately 4%.
I look forward to sharing more about our future growth plans and longer-term strategy at our Investor Day on September 17.
At our Investor Day, we will provide you with an initial 2022 revenue outlook.
We will also provide you with an updated view of our long-term targets for revenue growth for our three lines of business, operating metrics for our three lines of business and enterprise margin, net income and earnings per share expectations.
And, as importantly, as has been our hallmark style, we will provide you with our detailed playbook for achieving those results.
We will continue not just to declare our goals, but to show you the transparency and specificity how we will achieve them.
Suffice it to say, we are an inherently high-growth businesses and have demonstrated an ability to grow the top line and maintain an attractive margin profile even during a global pandemic.
The political legislative and regulatory environments are all positive catalysts, and the social demographic profile of the U.S. population remains in significant need of the social safety net we manage.
As I conclude my remarks, I want to express my gratitude to our management team and our nearly 13,000 Molina colleagues.
Their skill, dedication and steadfast service continue to form the foundation for everything we have achieved and everything we will achieve in the years to come.
beginning with some detailed commentary about our second quarter results.
The net effect of COVID negatively impacted second quarter results by $77 million or approximately $1 a share.
This increased the second quarter MCR by 110 basis points to 88.4%.
The impact was higher than our expectations and negatively affected all three lines of business.
We experienced high COVID-related inpatient costs early in the quarter, which tapered off as the quarter progressed.
We also saw increases in professional and outpatient costs, which we attribute to what may be the return to normal pre-COVID utilization patterns.
In Medicaid, the net effect of COVID was a cost of approximately $25 million and accounted for a 40 basis point increase that is included within our reported 89% MCR.
The first quarter Medicaid MCR had a 150-basis-point benefit due to COVID, which substantially explains the sequential increase in MCR.
We continue to expect the full year Medicaid MCR to be in the high 80s.
In Medicare, the net effect of COVID was a cost of approximately $17 million, increasing the MCR by 200 basis points to 87.6% in the quarter.
The first quarter, Medicare MCR was increased by 400 basis points due to COVID.
Sequentially, the MCR improved driven by this lower net effect of COVID and improved underlying performance compared to the first quarter.
We anticipate a full year Medicare MCR in the high 80s.
In Marketplace, the net effect of COVID was a cost of approximately $35 million, increasing the MCR by 480 basis points.
The first quarter Marketplace MCR included a similar impact from the net effect of COVID, which increased the first quarter MCR by approximately 500 basis points.
The resulting sequential increase in MCR versus the first quarter reflects the normal seasonality associated with members reaching their policy deductible limits.
Due to the higher-than-expected impact from the net effect of COVID in the first half of the year, we now expect Marketplace pre-tax margins to moderate to low single digits.
We expect that when the COVID pandemic subsides, our Marketplace pre-tax margin will be squarely on target with our mid-single-digit pre-tax margin expectations.
Turning now to our balance sheet.
We received $145 million of subsidiary dividends in the quarter, which brought our parent company cash balance to $564 million at the end of the quarter.
We have ample capacity to fund the announced acquisitions.
At our current margins, we generate significant excess cash and additional debt capacity.
After funding our announced pending acquisitions, we will have year-end acquisition capacity of over $1.4 billion.
At the multiples we have paid in recent transactions, this gives us the ability to drive $3 billion to $4 billion in annualized revenue growth.
More importantly, at our current level of performance, this level of acquisition capacity is generated each year.
Our reserve approach remains consistent with prior quarters, and our reserve position remains strong.
Days in claims payable at the end of the quarter represented 48 days of medical cost expense, unchanged from the first quarter.
Prior year reserve development in the second quarter of 2021 was modestly favorable, but any P&L impact was mostly absorbed by the COVID-related risk corridors.
Debt at the end of the quarter is 2.2 times trailing 12-month EBITDA.
Our debt-to-cap ratio was 50%.
However, on a net debt basis, net of parent company cash, these ratios fall to 1.7 times and 43%, respectively.
These metrics reflect a conservative leverage position.
A few additional comments related to our earnings guidance.
We raised full year 2021 adjusted earnings per share guidance to be no less than $13.25 per share, which reflects the following: our underlying outperformance, an increase in our revenue guidance and the associated margin, the net effect of COVID expectations, which has increased by $1 per share and is now expected to be approximately $2.50 per share for the full year, and continued caution in forecasting utilization trends in the remaining six months of the year due to the COVID pandemic.
In a typical year, the seasonality of utilization and timing of open enrollment periods resulted in third quarter earnings being higher than fourth quarter earnings.
However, this year, we expect second half earnings to be distributed more evenly between the quarters due to the net effect of COVID and particularly the impact of risk sharing corridors.
As Joe discussed, we believe the incremental embedded earnings power of the company is in excess of $5.
This is composed of several items.
The increased net effect of COVID, which is now expected to create a $2.50 per share decrease that should dissipate as the pandemic subsides.
Medicare risk score disruption that created approximately $1 a share overhang; and as we obtain our target margins on Magellan Complete Care and Kentucky, and once Affinity and Cigna acquisitions are closed and synergized, we expect to achieve additional adjusted earnings per share of at least $2.
This embedded earnings power does not represent 2022 guidance, but rather an accounting of the dynamic impacts that are temporarily depressing our earnings profile.
There are many other items that will affect our actual earnings guidance for 2022, including several possible scenarios for the impact of Medicaid membership redeterminations.
In short, our 2021 earnings jump-off point into 2022 is very strong.
Operator, we are now ready to take questions.
 Assistant:

Chosen response:
q2 adjusted earnings per share $3.40.
sees fy adjusted earnings per share $13.25.
premium revenue was approximately $6.6 billion for q2 of 2021, an increase of 51% compared to q2 of 2020.


Prompt:
Human: During our call today, unless otherwise stated, we're comparing results to the same period in 2020.
Future dividend payments and share repurchases remain subject to the discretion of Altria's board.
Altria reports its financial results in accordance with U.S. generally accepted accounting principles.
Today's call will contain various operating results on both a reported and adjusted basis.
Adjusted results exclude special items that affect comparisons with reported results.
Finally, all references in today's remarks to tobacco consumers or consumers within a specific tobacco category or segment refer to existing adult tobacco consumers 21 years of age or older.
In the third quarter, Altria continued to balance maximizing profitability from our core tobacco businesses with investing to realize a vision of responsibly leading the transition of adult smokers to a smoke-free future.
Our tobacco business has performed well against difficult year-over-year comparisons, and we are encouraged by the significant retail share growth from on!
in the third quarter.
We also continue to reward shareholders with a strong and growing dividend and announced today the expansion of our share repurchase program to $3.5 billion.
Both Altria and the tobacco industry are evolving and with transformation comes opportunity.
It also brings uncertainty and adversity, including the recently International Trade Commission decision related to IQOS.
We knew our journey to a smoke-free future would not be easy, but our determined and talented employees have demonstrated they are up to the challenge.
The pursuit of our vision is not based on a single brand or product platform.
Our vision is built on our understanding of tobacco consumers, their capabilities as a leading tobacco company and a portfolio of smoke-free brands and product formats.
We make progress through the performance of our current smoke-free portfolio and advancements in regulatory sciences, data analytics and a robust consumer engagement system.
Our tobacco businesses remain strong, and our vision keeps us focused and guides us forward.
Let's now turn to our business results.
Altria grew its third quarter adjusted diluted earnings per share, 2.5% despite a backdrop of challenging comparisons and unfavorable year-over-year trade inventory movement.
For the first nine months of the year, adjusted earnings per share grew 4.5%, primarily driven by the strong financial performance of our tobacco businesses and higher ABI adjusted earnings.
Our smokeable products segment continues to generate significant cash and return -- return to shareholders in fuel or vision.
Third quarter adjusted operating company's income decreased 2.2%, reflecting the impact of trade inventory swings, but grew 2.6% to $7.9 billion for the first nine months, while Marlboro remained strong.
The oral tobacco product segment continued to deliver robust profit margins, while Copenhagen maintained its leadership position.
In all nicotine pouches, we have accelerated investment behind Helix and believe that the on!
portfolio is well positioned in this fast-growing category.
We're advancing the sophistication of our analytics across our companies.
The Helix team uses this capability to evaluate the impact of promotional tools on tobacco consumers and understand what actions effectively drive trial, repeat purchase and adoption.
retail share of oral tobacco increased a full share point sequentially, reaching 3 share points for the third quarter and nearly tripling since the end of last year.
These strong results were driven by increased smoker trial and repeat purchase from existing on!
We're excited by the performance of on!
during the first nine months of the year and believe consumer insights, disruptive retail executions and consumer engagement will continue to fuel its growth.
Last year, we submitted premarket tobacco applications to the FDA for the entire on!
While the FDA has made substantial progress in reviewing millions of PMTAs they received, our applications for on!
A week ago, the FDA authorized the marketing of four of our oral nicotine products, Verve discs and Verve chews in the flavors of green mint and blue mint and determined that the marketing of these products is appropriate for the protection of public health.
This is the first flavored product authorization issued by the FDA for newly deemed tobacco products.
While our Verve products are not currently in market, we believe the learnings we gained from developing our Verve submission were critical in filing compelling and timely submissions for on!
, which we completed in only nine months after closing the on!
We're also actively working on modified risk product applications for on!
We believe an MRTP would be an impactful point of differentiation for the brand and an important tool in educating and ultimately transitioning smokers to less harmful products.
In e-vapor, we estimate that the total category volume increased 17% versus the year ago period and increased 2% sequentially as a result of continued elevated levels of competitive activity.
While we had hoped for clarity on the category's outlook as manufacturers receive PMTA decisions, the future of e-vapor is still uncertain.
For most of the leading e-vapor products, the applications are still pending, including those submitted by JUUL.
Moving forward, we expect e-vapor volume trends to be influenced by regulatory activity, which has the potential to impact the degree of cross-category movement.
Recently, the CDC published an update from their National Youth Tobacco Survey.
While caution is warranted when comparing results year-over-year due to the impact of the pandemic on the surveys methodology, underage e-vapor use, including use of JUUL, shows continued signs of decline.
We're encouraged by the progress, but more still needs to be done, and we remain committed to continuing our work to drive down underage use.
Turning to heated tobacco.
The IQOS team continued to refine its go-to-market approach for new and innovative products.
Across the four states where IQOS is available, total Marlboro HeatSticks volume continue to grow, with repeat purchase accounting for approximately 85% of sales.
According to IQOS consumers, our IQOS experts program played a significant role in their repeat purchases.
The program offers smokers personalized support and encouragement through consistent tailored engagements.
In the Northern Virginia lead market device penetrations as a percent of the smoker population continue to exceed the performance of previous rollouts.
In the last four weeks of the third quarter, Marlboro HeatSticks achieved a cigarette category retail share of 1.8% in Northern Virginia stores with distributions.
As we mentioned earlier, the International Trade Commission recently imposed an importation ban and issued season desist orders on IQOS, Marlboro HeatSticks and infringing components.
We're disappointed in this decision as IQOS is the only inhalable tobacco product to have received FDA authorization as a modified risk tobacco product.
The ITC's importation ban will make the product unavailable for all consumers have switched to IQOS, reduce the options for over 20 million smokers looking for alternatives to cigarettes and ultimately is detrimental to public health.
We continue to believe the plaintiff's patents are invalid and that IQOS does not infringe on those patents.
The ITC's decision is currently under 60-day review by the administration's U.S. Trade Representative.
In the event that the administration does not reject the decision, we're preparing to comply with the order.
We've been focused on our contingency plans surrounding sales and distribution and have been in communication with PMI on their domestic manufacturing plans.
We view the ITC's decision as a frustrating obstacle, but we are not deterred from the work required to realize our vision.
We remain committed to the heated tobacco category and believe it can play an important role in transitioning smokers to a smoke-free future.
Going forward, we expect to apply the knowledge and capabilities we gained from introducing and responsibly marketing a brand-new product category.
For example, we've learned how to blend behavioral science, data insights and consumer engagement to support smokers on their smoke-free journey, leverage MRTPs to educate consumers on the benefits of reduced risk products and establish a robust post-market surveillance system as required to monitor FDA-authorized products.
I'm optimistic about the future for tobacco harm reduction in the U.S.
We have an unprecedented opportunity to lead the way in shifting millions of smokers away from cigarettes if we follow the science and foster innovation with the support of reasonable regulation.
Let's turn to our financial outlook.
We're raising the lower end of our full year 2021 guidance and now expect to deliver adjusted diluted earnings per share in a range of $4.58 to $4.62.
This range represents a growth rate of 5% to 6% from a $4.36 base in 2020.
They bring significant combined expertise in operations, business strategy, consumer insights, and public policy and will be tremendous assets as we pursue our vision.
I'd like to begin by discussing the macroeconomic factors we believe influence the tobacco consumer.
We believe rising gas prices, inflation and the conclusion of COVID-19 relief programs led to a decrease in disposable income versus the previous quarter.
In addition, increased consumer mobility offer consumers more options for their discretionary spending.
At retail, trends were unchanged sequentially.
We estimate that compared to pre-pandemic levels, the number of tobacco consumer trips to the store continue to be depressed, but tobacco expenditures per trip remained elevated.
We continue to monitor tobacco consumer behaviors and will provide our insights on the factors impacting those behaviors as we move forward.
Moving to our businesses.
The smokable products segment expanded its adjusted OCI margins to 58%, an increase of 0.5 percentage point for the third quarter and more than 1 percentage point for the first nine months.
This performance was supported by strong net price realization of 11.3% in the third quarter and 9.2% for the first nine months.
Smokeable segment reported domestic cigarette volumes declined 12.9% in the third quarter and 8% in the first nine months.
We believe reported volumes reflect an absolute wholesale inventory swing of 1.5 billion sticks as wholesalers build inventory in the third quarter of last year, but depleted inventories this quarter.
When adjusted for trade inventory movement, calendar differences and other factors, domestic cigarette volumes for the third quarter and first nine months declined by an estimated 7% and 5%, respectively.
At the industry level, we estimate that adjusted domestic cigarette volumes declined by 6.5% in the third quarter and by 5% in the first nine months.
Marlboro remains strong and resilient despite a widening price gap in a dynamic macroeconomic environment.
In the third quarter, Marlboro retail share of the total cigarette category was unchanged, both sequentially and versus the year ago period at 43.2%.
And in discount, total segment retail share in the third quarter continued to fluctuate, increasing 0.3 percentage points sequentially to 25.3%.
In cigars, we continue to believe Black & Mild is the most profitable brand in the large mass machine-made cigar category.
Reported cigar shipment volume increased by 2.7% in the first nine months of 2021.
Turning to the oral tobacco products segment.
Adjusted OCI and adjusted OCI margins contracted for the third quarter and first nine months primarily due to increased spending behind on!
and shifting mix between MST and oral nicotine pouches.
We're pleased with the strong overall margins for the segment and continue to be excited about the opportunity for on!
in the oral nicotine pouch category.
Total reported oral tobacco products segment volume decreased by 3.8% for the third quarter and by 0.5% for the first nine months.
When adjusted for trade inventory movement in calendar differences, segment volume decreased by an estimated 2.5% for the third quarter and 0.5% for the first nine months.
Oral tobacco products segment retail share for the third quarter was sequentially unchanged as strong share gains for on!
offset declines in MST. The segment declined 2.2 percentage points versus the third quarter last year due to the continued growth of the oral nicotine pouch category.
Looking ahead, we're monitoring several factors as we move toward the end of this year and into the next.
Many industries are experiencing rising input costs and supply chain disruptions.
For Altria, we foresee modest inflation in the year ahead.
This could have some impact on the input costs and the inflation adjustment to our Master Settlement Agreement payments.
However, our tobacco businesses remain strong, and we are confident in our ability to manage through short-term economic challenges.
As a reminder, we contemplate an array of scenarios in our financial forecast and intend to incorporate these factors into our 2022 earnings per share guidance, which we expect to provide in January.
Turning to our investment in ABI.
The five-year lockup on our restricted shares expired earlier this month.
We've been an investor in the beer category since 1970 and our original investment of $230 million has served us extremely well over the past half century.
In fact, since 2003, our beer investment has served as a diverse income stream that contributed over $12 billion of adjusted equity earnings, contributed over $10 billion of cash from both dividends and 2016 merger proceeds and strengthened our balance sheet.
We've performed rigorous analyses regarding the ABI investment.
First, as part of the preparation of our third quarter financial statements; and second, in anticipation of the expiration of the lockup.
In preparing our third quarter financials, we assessed the latest outlook for ABI's business under the applicable accounting guidance and recorded an impairment to the asset.
While we continue to believe ABI's share price will recover, we now do not expect it to fully recover to its carrying value as soon as previously expected.
As a result, we have written our investment in ABI down to its September 30 market value of $11.2 billion.
Regarding our decisions around the lockup, we view our ABI stake as a financial investment, and our goal is to maximize the long-term value of the investment for our shareholders.
We consider several factors as we analyze the investment, including the strategic rationale of continuing as a long-term investor in the beer category.
ABI's share price, which has declined by more than 30% since October 2019, due in large part to impacts of the COVID pandemic.
Our expectations of ABI's business, alternative uses of capital and tax considerations.
We have determined that selling our ABI investment at this time would not maximize long-term shareholder value.
Therefore, we continue to plan to maintain our ABI investment.
We continue to have confidence in ABI's long-term strategies, premium global brands, experienced management team and capability to successfully navigate near-term challenges.
We will continue to monitor and evaluate market conditions and the analytical factors mentioned previously on a regular basis, consistent with our goal of maximizing the long-term value of this investment for our shareholders.
We remain committed to creating long-term shareholder value through the pursuit of our vision and our significant capital returns, which we demonstrated in the third quarter by paying approximately $1.6 billion in dividends and raising the dividend for the 56th time in 52 years, selling Ste.
Michelle Wine Estates and expanding our share repurchase program from $2 billion to $3.5 billion and repurchasing 6.7 million shares totaling $322 million.
We have approximately $2.5 billion remaining under the newly expanded $3.5 billion share repurchase program, which we expect to complete by December 31, 2022.
With that, we'll wrap up.
We've also posted our usual quarterly metrics, which include pricing, inventory and other items.
Let's open the question-and-answer period.
Operator, do we have any questions?
 Assistant:

Chosen response:
qtrly total cigarette shipment volumes $24.05 billion (not $24.50 billion), down 12.9%.
raises fy adjusted earnings per share view to $4.58 to $4.62.
narrows its 2021 full-year adjusted diluted earnings per share (eps) guidance.
altria narrows its guidance for 2021 full-year adjusted diluted earnings per share to be in a range of $4.58 to $4.62.
altria group -continue to monitor impact of covid-19 on juul’s business, including near-term supply chain constraints and component part shortages.
altria group - during 2020 and the first nine months of 2021, cronos has been adversely impacted by the covid-19 pandemic.