Executive Summary / Key Takeaways

• Maximus, a long-standing partner to government agencies, is strategically positioned in essential, bipartisan-supported programs like veterans benefits, Medicare, and Medicaid, providing resilience amidst political and economic shifts.
• Recent strong financial performance, particularly in the U.S. Federal Services segment driven by clinical assessment volumes and operational efficiencies, has led to a second consecutive raise in FY2025 revenue and earnings guidance.
• The company is actively investing in and deploying advanced technologies, including AI and machine learning, to enhance operational efficiency, improve customer experience, and create competitive differentiation in areas like clinical assessments and contact center services.
• While facing potential headwinds from government efficiency initiatives, procurement delays, and requests for pricing concessions, Maximus's deep domain expertise, established relationships, and focus on performance-based contracts are key strengths.
• The company maintains a strong balance sheet and disciplined capital allocation approach, prioritizing organic investments, a growing dividend, strategic M&A, and opportunistic share repurchases, while managing temporary cash flow impacts from collection delays.

A Foundation Built on Public Service

For nearly five decades, Maximus, Inc. has operated with a clear mission: "Moving People Forward" by partnering with government agencies to improve the delivery of critical public services. Established in 1975, the company has evolved into a leading provider of business process services (BPS), technology solutions, and consulting, deeply embedded in the fabric of government programs at the federal, state, local, and international levels. This long history has cultivated deep domain expertise and enduring relationships, positioning Maximus as a trusted partner in administering complex health and human services programs that support millions of citizens.

Maximus's core business model revolves around translating public policy into efficient, scalable operating models. This involves everything from managing large health insurance eligibility and enrollment programs under the Affordable Care Act and Medicaid, to providing clinical services like health and disability assessments for veterans and individuals with disabilities, and delivering technology solutions for IT modernization and customer service. This focus places Maximus squarely in markets characterized by increasing demographic demand, constrained government budgets necessitating efficiency, and a growing imperative for technological modernization.

The competitive landscape for government services is diverse, featuring a mix of large, broad-scope players like Accenture (ACN) and IBM (IBM), specialized BPS providers like Serco Group (SRP), and IT service firms like CGI Group (GIB), alongside smaller niche players and increasingly, internal government capabilities and emerging tech firms offering automated solutions. While larger competitors like Accenture and IBM offer vast scale and extensive digital transformation capabilities, often boasting higher R&D investments and broader service portfolios, Maximus differentiates itself through its specialized focus on government health and human services, deep regulatory understanding, and operational excellence in program administration. Maximus's BPS platforms are designed for efficiency, enabling faster processing speeds and potentially lower operating costs in specific program areas compared to more generalized service providers. However, the company faces challenges from competitors with greater technological scale and R&D budgets, as well as potential government efforts to lower barriers to entry or increase the use of small businesses.

Strategic Pillars and Technological Edge

Maximus's strategy, articulated through its three central pillars – Customer Services, Digitally Enabled; Future of Health; and Advanced Technologies for Modernization – is designed to leverage its foundational strengths and address evolving government needs. The Maximus Forward initiative underpins this strategy, driving internal optimization and enabling reinvestment.

A critical component of this strategy, and a key differentiator, is the company's increasing focus on technology and innovation. Maximus is actively deploying advanced technologies to enhance its service delivery. The Total Experience Management (TXM) solution, for instance, is a technology-enabled contact center offering designed to provide secure, scalable, cloud-based multichannel services, aligning with federal agencies' goals for improved citizen experience.

Beyond customer service, Maximus is applying AI and machine learning (AI/ML) to drive significant operational efficiencies. On its federal No Surprises Act contract, an implemented AI solution has streamlined the independent dispute resolution process, leading to improved efficiency, increased throughput, reduced manual effort, and lower temporary labor costs. In the vital work supporting the Department of Veterans Affairs (VA) with Medical Disability Examinations (MDE), Maximus has invested in a proprietary AI/ML-powered records processing system leveraging AWS GovCloud and Amazon Textract. This technology is designed to accelerate case preparation, reduce manual time, enable the handling of greater volumes (particularly relevant following the PACT Act), and allow staff to focus on higher-value tasks like quality assurance, contributing to faster claim resolution for veterans.

These technological applications are not merely buzzwords; they represent tangible efforts to improve performance metrics and create a competitive moat. While specific, comprehensive quantifiable benefits across all applications were not detailed, the examples provided highlight the strategic intent: to drive efficiency, improve quality, and handle increasing volumes more effectively than traditional methods or less specialized competitors. The establishment of an AI and data accelerator group and the inaugural investment via Maximus Ventures in human-in-the-loop AI for clinical assessments further underscore the commitment to advancing AI capabilities and integrating innovative technology into core operations and future offerings. This focus on practical, domain-specific technology application is a key aspect of Maximus's competitive positioning, aiming to provide efficiency and targeted solutions that complement the broader technological offerings of larger rivals.

Segment Performance and Financial Health

Maximus operates through three segments, each contributing uniquely to the company's overall performance:

• U.S. Federal Services: This segment is a primary growth engine, delivering solutions to federal agencies. In the three months ended March 31, 2025, revenue reached $777.9 million, a 10.9% increase year-over-year, driven entirely by organic growth. For the six months, revenue was $1.56 billion, up 13.0%. This growth is largely attributed to clinical programs, including medical assessments, benefiting from increased volumes (partly due to the PACT Act and overall demand) and operational efficiencies that reduced penalties. Support for FEMA also contributed in Q2 FY2025. The segment's operating income margin was strong at 15.3% in Q2 and 14.0% for the six months, reflecting these favorable dynamics. Management anticipates a full-year FY2025 operating margin between 12.5% and 13.0%, implying a moderation in the back half compared to the exceptionally strong first half.
• U.S. Services: Serving state and local governments, this segment saw revenue decrease by 9.0% to $442.4 million in Q2 FY2025 and 8.3% to $894.6 million for the six months. This decline reflects the expected normalization of volumes following the peak activity related to Medicaid redeterminations in the prior year. Despite the revenue decrease, the segment's operating income margin showed sequential improvement, reaching 12.2% in Q2. The full-year FY2025 operating margin is expected to be approximately 11.0%. The segment continues to see opportunities in clinical assessments, the transition to modular Medicaid Enterprise Systems (MES), and states establishing their own exchanges.
• Outside the U.S.: This segment provides services to international governments. Revenue decreased by 11.9% to $141.5 million in Q2 FY2025 and 2.9% to $311.3 million for the six months, primarily due to the divestiture of businesses in Australia and Korea in Q1 FY2025. However, organic growth was solid at 4.6% in Q2, driven by remaining healthier components, notably UK contracts like the FAS. The segment has moved from near breakeven to profitability, with an operating income margin of 3.4% in Q2 and 4.1% for the six months. This improvement is a result of portfolio reshaping actions aimed at reducing volatility and emphasizing profitable operations. Management expects a full-year FY2025 operating margin between 3.0% and 5.0%.

Consolidated financial performance in the first half of FY2025 reflects these segment dynamics. Revenue for the six months ended March 31, 2025, was $2.76 billion, up from $2.68 billion in the prior year period. Operating income was $239.8 million, up from $235.0 million. Net income for the six months was $137.8 million ($2.35 diluted EPS), compared to $144.7 million ($2.35 diluted EPS) in the prior year period, impacted by higher divestiture-related charges and a higher effective tax rate. Adjusted EBITDA margin for Q2 FY2025 was 13.7%, and 12.4% for the six months, demonstrating strong profitability.

Maximus maintains a solid balance sheet. As of March 31, 2025, cash and cash equivalents were $108.1 million. Total debt stood at $1.51 billion, resulting in a net total leverage ratio of 1.9 times, below the company's target range of 2 to 3 times. While cash flow from operations was lower in the first six months of FY2025 ($37.3 million used) compared to the prior year ($152.1 million provided), this was primarily due to temporary delays in collections, particularly from a large U.S. state customer. Days Sales Outstanding (DSO) increased to 73 days at March 31, 2025, from 61 days at September 30, 2024, largely driven by this single contract delay. The company anticipates collections to improve and DSO to normalize in the fourth quarter of FY2025. Capital allocation priorities include funding organic investments, paying a quarterly dividend ($0.30 per share declared for Q2), strategic acquisitions, and opportunistic share repurchases ($306.4 million used to repurchase 4.1 million shares in the first six months of FY2025).

Outlook and Risks

Maximus has raised its guidance for fiscal year 2025, reflecting the strong performance in the first half. Revenue is now projected to be between $5.25 billion and $5.4 billion. Adjusted EBITDA margin guidance is increased to approximately 11.7%. Adjusted EPS is raised to a range of $6.30 to $6.60 per share. Free cash flow guidance is maintained at $355 million to $385 million. Management emphasizes that this guidance reflects the Q2 overperformance and effectively maintains the outlook for the second half, implying a natural step down from the exceptional Q2 results. Projections are based on existing contracts, with no reliance on new work contributing to this year's guidance, reflecting a cautious approach given the dynamic environment.

This cautious stance is warranted by several potential risks and uncertainties. The U.S. Federal Government's focus on efficiency, including the work of the Department of Government Efficiency (DOGE), could lead to procurement changes, delays, or requests for pricing concessions on existing contracts. While the impact to date has been minimal ($4 million estimated revenue impact in FY2025 from small contracts), the systematic review of government spending is ongoing. Procurement delays, particularly in civilian agencies, continue to be a factor, although the company is optimistic about future improvements. The company is also exposed to risks inherent in government contracting, such as the ability of customers to terminate contracts on short notice and the need to win recompetes (though rebid win rates remain historically strong). Litigation, including the ongoing MOVEit cybersecurity incident lawsuits, represents a potential financial and reputational risk, although the company has accrued for expected resolution costs. Temporary collection delays, as seen in Q2 FY2025, can impact cash flow timing.

Despite these risks, Maximus's positioning in essential, bipartisan-supported programs provides a degree of stability. The company's strategic investments in technology and operational efficiency, coupled with its deep understanding of government programs and strong customer relationships, are intended to mitigate risks and capitalize on opportunities for modernization and improved service delivery. The goal beyond FY2025 is to achieve ongoing incremental improvement in adjusted EBITDA margin, moving into the upper half of the 10% to 13% near-term range.

Conclusion

Maximus stands as a resilient provider of essential government services, leveraging nearly 50 years of experience and deep domain expertise to partner with agencies in delivering critical programs. The company's strategic focus on digitally enabled customer services, the future of health, and advanced technologies for modernization, supported by internal efficiency initiatives and targeted acquisitions, positions it to capitalize on the ongoing demand for efficient and effective public service delivery. Recent financial results, particularly the strong performance in the U.S. Federal segment, underscore the benefits of its operational model and strategic investments, leading to a raised outlook for FY2025.

While macroeconomic uncertainty, government efficiency initiatives, and procurement dynamics present potential headwinds, Maximus's established relationships, expertise in complex programs, and commitment to technological innovation provide a solid foundation. The company's strong balance sheet and disciplined capital allocation further support its ability to navigate challenges and pursue growth opportunities. Investors should recognize Maximus's role in durable, bipartisan programs and its potential for continued growth fueled by government modernization efforts, while monitoring the impact of procurement trends and the execution of its strategic technology roadmap.