MAXIMUS, INC. Q2 FY2025 earnings call

• Macro Environment: Discussion of DOGE's efforts to streamline government, state flexibility to contract reactivated, and ongoing Medicaid discussions with potential legislative changes. - Business Updates: Federal segment benefits from VES synergy, U.S. Services clinical assessments growth, and Outside The U.S. segment organic growth. - Innovations: AI solutions implemented in No Surprises Act contract and VA MDE contract; Maximus Forward transformation focusing on technology and efficiency. - Pipeline and Procurement: Total pipeline at $41.2 billion, proposals in prep and submitted up 25% from prior quarter, book-to-bill at 0.8 times for trailing twelve months.

Federal Services Segment: Revenue increased 10.9% to $778 million, all organic. Operating income margin was 15.3% in Q2 vs. 11.9% in the prior year period. U.S. Services Segment: Revenue decreased to $442 million from $486 million in the prior year period. Operating income margin was 12.2% in Q2 vs. 14% in the prior year. Outside The U.S. Segment: Revenue was $142 million, with organic growth of 4.6%. Operating income margin was 3.4% in Q2 vs. 0.4% in the prior year period.

• Revenue guidance increased to a range of $5.25 billion to $5.4 billion. - Adjusted EBITDA margin guidance is 11.7%, up 50 basis points from previous guidance. - Adjusted EPS guidance ranges from $6.30 to $6.60 per share, up $0.40 from prior guidance. - Free cash flow guidance remains $355 million to $385 million. - Cautious approach due to dynamic environment, with a natural step down from Q2 performance and no reliance on new work contributing to the fiscal year.

• Macro environment uncertainties affecting federal procurement and contract outcomes. - Potential pricing concessions and delays in new work due to administration's efforts to consolidate contracts. - Impact of DOGE decisions on certain contracts, with limited revenue impact to date but evolving environment.

Q: How to think about the guidance and weighting between Q3 and Q4?

A: Guidance reflects Q2 overperformance with a natural step down from Q2, maintaining Q3 and Q4 guidance due to risk and opportunity considerations, with a cautious approach accommodating potential downside.

Q: What are the drivers behind margin performance?

A: Volume of work, technology investments including automation, redirecting staff to higher value functions.

Q: Any delays in new work pipeline and new opportunities?

A: Pipeline volume is strong but there's slowdown in civilian agencies due to administration's contract consolidation efforts; however, there are contract bridges/extensions benefiting incumbents and opportunities from emerging customer priorities.

Q: Drivers of Outside The U.S. segment organic growth?

A: UK functional assessment services contract recompete, which provides a modest step up in revenue compared to the predecessor contract.