Maximus Inc. (MMS) has established itself as a leading strategic partner to government agencies worldwide, helping to improve the delivery of vital public services amid complex technological, health, economic, environmental, and social challenges. With nearly 50 years of experience working with federal, state, and local governments, as well as international clients, Maximus has built a reputation for efficiently and effectively executing mission-critical programs.
Business Overview
Maximus was established in 1975 in Virginia as a provider of government services. In its early years, the company focused on providing program operations and management services to government agencies, establishing a reputation for efficiently and effectively delivering services that help government clients better serve their constituents. Over time, Maximus expanded its capabilities to include clinical services, such as appeals and assessments work for the U.S. Department of Veterans Affairs, as well as technology solutions including system and application development, IT modernization, and maintenance services.
Throughout its history, Maximus has faced various challenges, including audits, investigations, and reviews relating to compliance with the laws and regulations that govern its role as a contractor to government agencies. The company has also been subject to litigation, demonstrating its resilience in navigating complex regulatory environments.
The company operates through three primary segments: U.S. Federal Services, U.S. Services, and Outside the U.S. The U.S. Federal Services segment delivers solutions that help various U.S. federal government agencies better achieve their missions, including program operations and management, clinical services, and technology solutions. The U.S. Services segment provides a variety of services, such as program operations, clinical services, employment services, and technology solutions for U.S. state and local government programs. The Outside the U.S. segment provides business process services and technology solutions for international governments.
In recent years, Maximus has made strategic divestitures to streamline its business and focus on its core competencies. In the first quarter of fiscal year 2025, the company completed the sale of its employment services businesses in Australia and South Korea, which were part of the Outside the U.S. segment. This move is expected to improve the profitability and stability of the segment going forward.
Financials
Financial Overview
Maximus reported revenue of $1.40 billion for the first quarter of fiscal year 2025, representing a 5.7% increase compared to the same period in the prior year. This growth was driven primarily by the U.S. Federal Services segment, which saw a 15.3% increase in revenue, as well as strong performance in the Outside the U.S. segment, which posted a 6.0% revenue increase. The U.S. Services segment experienced a 7.7% decrease in revenue due to tougher year-over-year comparisons resulting from higher Medicaid-related volumes in the prior year period.
The company's adjusted EBITDA margin for the quarter was 11.2%, compared to 10.2% in the prior year period, and adjusted earnings per share (EPS) were $1.61, compared to $1.34 in the same period last year. These results were bolstered by the successful outcomes of key contract recompetes, including the renewal of the company's medical disability examination contracts with the U.S. Department of Veterans Affairs and the withdrawal of the attempted early recompete of the Centers for Medicare and Medicaid Services' Contact Center Operations contract.
For the first quarter of fiscal year 2025, Maximus reported net income of $41.2 million. Operating cash flow (OCF) was negative $80.0 million, and free cash flow (FCF) was negative $103.0 million. It's important to note that these figures represent a single quarter and may not be indicative of full-year performance.
Segment Performance
The U.S. Federal Services segment saw its revenue increase 15.3% to $780.65 million in the first quarter, driven by continued strength in clinical programs like medical assessments and broader growth across the segment's contract portfolio. Gross profit for the segment increased to $173.31 million, representing a gross margin of 22.2%. Operating income rose to $99.10 million, an operating margin of 12.7%.
The U.S. Services segment experienced a 7.7% decrease in revenue to $452.25 million in the first quarter. Cost of revenue declined 3.8%, resulting in gross profit of $95.00 million and a gross margin of 21.0%. Operating income was $40.85 million, representing an operating margin of 9.0%. The segment is expected to achieve a full-year operating margin of approximately 11.0%.
The Outside the U.S. segment's revenue increased 6.0% to $169.77 million in the first quarter, driven by organic growth in the UK and the impact of a stronger British Pound. Cost of revenue increased 1.1%, leading to gross profit of $33.24 million and a gross margin of 19.6%. Operating income was $8.12 million, representing an operating margin of 4.8%. For the full fiscal year 2025, the segment is expected to achieve an operating margin between 3-5%.
Liquidity
Maximus has a strong balance sheet, with total debt of $1.40 billion as of December 31, 2024, and a net debt to EBITDA ratio of 1.8 times. The company has been actively deploying capital through share repurchases, having acquired approximately 3.1 million shares for $237 million during the first quarter of fiscal year 2025.
As of December 31, 2024, Maximus had $72.65 million in cash and cash equivalents. The company also has access to a revolving credit facility with $480 million available. The debt-to-equity ratio stands at 0.0517, indicating a relatively low level of debt compared to equity. The current ratio and quick ratio are both 1.7165, suggesting strong short-term liquidity.
Outlook and Key Developments
Maximus has raised its full-year fiscal 2025 guidance, with revenue now expected to be in the range of $5.2 billion to $5.35 billion, representing an implied organic growth rate increase of 50 basis points compared to the prior guidance. The company's adjusted EPS guidance has been increased to a range of $5.90 to $6.20 per share, up $0.20 from the previous guidance. The adjusted EBITDA margin guidance for the full year has also improved to 11.2%, up 20 basis points from the previous guidance. Additionally, Maximus has increased its free cash flow guidance for fiscal year 2025 to $355 million to $385 million, up $10 million from the previous guidance.
The company's strong performance and favorable outcomes on key contract recompetes have positioned Maximus well to continue supporting government agencies in their efforts to modernize and improve the delivery of public services. One notable recent win was a $76 million, nine-year contract with the Federal Reserve System to provide technology-enabled contact center services through Maximus' recently announced Total Experience Management (TXM) solution. This award demonstrates the company's capabilities in delivering innovative, technology-driven solutions that meet the strict data privacy and security requirements of government clients.
Maximus has also been investing in advanced technologies, such as artificial intelligence (AI) and machine learning (ML), to enhance its service delivery and provide more efficient and effective solutions to its government customers. The company has established an AI and data accelerator group to advance its AI capabilities and ensure the responsible development and use of these technologies.
Risks and Challenges
As a government services provider, Maximus is subject to various risks, including the potential for changes in government policies and funding priorities, the uncertainty of contract renewals and recompetes, and the need to comply with complex regulatory requirements. The company also faces competition from other large government services providers and smaller, specialized firms.
Additionally, Maximus has faced some challenges in the past, including a cybersecurity incident related to the MOVEit file transfer application in 2023. The company has been actively addressing this issue and cooperating with the Department of Justice's investigation, having recorded an accrual of $8.2 million related to the matter as of December 31, 2024. Several class action lawsuits have been filed against the company's subsidiary, Maximus Federal Services, Inc., alleging negligence resulting in the compromise of personal information. The company has accrued an amount within a range of possible outcomes expected to be incurred to resolve these matters.
Conclusion
Maximus has demonstrated its ability to navigate the complex and ever-changing landscape of government services, delivering consistent financial performance and securing favorable outcomes on key contract recompetes. The company's strategic focus on technology modernization, clinical services, and efficient program administration positions it well to continue supporting government agencies in their efforts to improve the delivery of vital public services. With a strong balance sheet, a diversified portfolio of government contracts, and a proven track record of execution, Maximus appears well-poised to capitalize on future growth opportunities. The increased guidance for fiscal year 2025 reflects the company's confidence in its ability to deliver strong results and create value for shareholders.