Maximus (MMS): A Diversified Government Services Provider Delivering Consistent Growth and Profitability

Published on September 24, 2024 | Ticker: MMS

Maximus, Inc. (NYSE: MMS) is a leading provider of government services worldwide, helping millions of people access the vital government services they need. With over 45 years of experience working with local, state, federal, and international government clients, the company has established a strong reputation for delivering innovative and impactful programs that change lives.

Business Overview

Maximus operates through three business segments: U.S. Federal Services, U.S. Services, and Outside the U.S. The U.S. Federal Services segment delivers end-to-end solutions that help various U.S. federal government agencies better deliver on their mission, including program operations and management, clinical services, and technology solutions. The U.S. Services segment provides a variety of business process services, such as program administration, assessments, and related consulting work for U.S. state and local government programs. The Outside the U.S. segment provides business process services for international governments, transforming the lives of people around the world.

Financials

In the fiscal year 2023, Maximus reported annual revenue of $4.90 billion and net income of $161.79 million. The company's annual operating cash flow was $314.34 million, and its annual free cash flow was $223.65 million. These strong financial results demonstrate Maximus' ability to consistently deliver value to its government clients and shareholders.

Q2 2024 Performance

During the second quarter of fiscal year 2024, Maximus reported revenue of $1.35 billion, representing an 11.7% year-over-year increase. The company's adjusted operating income margin for the quarter was 11.1%, a significant improvement from the 7.2% margin in the prior-year period. Maximus' adjusted earnings per share for the quarter was $1.57, up from $0.81 in the same period last year.

The strong performance in the second quarter was driven by growth across all three of Maximus' business segments. The U.S. Federal Services segment reported a 20.1% increase in revenue and an 11.9% operating margin, benefiting from volume growth in the company's VA Medical Disability Examination (MDE) contracts. The U.S. Services segment saw an 8.1% revenue increase and a 14.0% operating margin, driven by the resumption of Medicaid redetermination activities and a large state-based assessment program.

While the Outside the U.S. segment experienced a 7.2% revenue decline, the segment's operating margin improved to 0.4% from a loss of 2.1% in the prior-year period. Maximus continues to focus on reshaping this segment to deliver consistent profitability, and the company expects the Outside the U.S. segment to be slightly above breakeven for the full fiscal year 2024.

Outlook

Maximus' strong financial performance has enabled the company to raise its guidance for fiscal year 2024. The company now expects revenue to be between $5.15 billion and $5.25 billion, up from the previous guidance of $5.08 billion to $5.18 billion. Adjusted operating income is estimated to be between $540 million and $560 million, an increase from the prior guidance of $505 million to $525 million. Adjusted earnings per share, excluding intangibles amortization and divestiture-related charges, is now projected to be between $5.65 and $5.85 per share, up from the previous guidance of $5.25 to $5.45 per share.

The improved outlook reflects higher expectations for both organic revenue growth and margin expansion. At the guidance midpoint, organic growth is projected to be nearly 7%, up from 5% in prior guidance, and the adjusted operating income margin is expected to be 10.6%, up from 10.0% in the previous guidance.

Recent Developments

Maximus' strong financial performance and improved guidance are a testament to the company's ability to execute on its strategic initiatives, including the Maximus Forward program, which is driving operational efficiency and cost management across the organization. The company's investments in technology, such as the Maximus Total Experience Management (TXM) solution, are also expected to enhance customer experience and drive further growth.

Contract Recompetes

One area of focus for Maximus is the potential recompete of two significant contracts. The first is the Contact Center Operations (CCO) contract with the Centers for Medicare & Medicaid Services (CMS), which is being recompeted earlier than expected with the expressed purpose of including a labor harmony agreement requirement. While Maximus has consistently met or exceeded all contractual service levels with uninterrupted operations and driven the highest independently measured customer satisfaction, the company is evaluating the potential impact of the recompete process.

The second contract is the Medical Disability Examination (MDE) contracts with the Veterans Benefit Administration (VBA). Several of these contracts will also be up for rebid later this year, as the current contracts include a ceiling on the claims volume, which has been exceeded due to the passing of the PACT Act. Maximus remains optimistic about the outcome, given its strong relationship with the VBA, demonstrated delivery capabilities, and continued investments in its operations.

Liquidity

Maximus' balance sheet and liquidity position remain strong, with the company's net debt-to-EBITDA ratio improving from 2.1x to 1.7x as of the end of the second quarter of fiscal year 2024. This provides the company with the flexibility and capacity to execute on its capital allocation priorities, including potential future mergers and acquisitions and opportunistic share repurchases.

Conclusion

Maximus is a well-diversified government services provider that has demonstrated its ability to deliver consistent growth and profitability. The company's strong performance in the second quarter of fiscal year 2024, coupled with its improved guidance and focus on strategic initiatives, position Maximus for continued success in the years ahead. Investors should closely monitor the company's progress on the potential recompete of its significant contracts, as well as its ongoing efforts to reshape the Outside the U.S. segment and drive further operational efficiency across the organization.

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