Maximus, Inc. Q4 FY2025 earnings call

Key Points:

• Fiscal year 2025 was notable for financial results and serving customers amidst sector change. Revenue and profitability exceeded projections with 3.9% organic growth. Contractual relationships were stable with cancellations at 1.5% of revenue.
• Strategic priorities for fiscal 2026 include expanding in U.S. Federal markets, policy-driven initiatives around the One Big Beautiful Bill Act in U.S. Services, and deployment of AI and related tech-enabled automation.
• Notable awards include a $86 million Joint Cyber Command and Control Readiness contract with the U.S. Air Force. Pipeline at September 30 was $51.3 billion, with $3.4 billion in proposals pending, $1.4 billion in proposals in preparation, and $46.6 billion in opportunities tracking.

The U.S. Federal Services segment saw revenue increase 12.1% over the prior fiscal year to $3.07 billion, with an operating income margin of 15.3% in fiscal 2025. The U.S. Services segment had revenue decrease to $1.76 billion from $1.91 billion the prior year, with an operating income margin of 9.7%. The Outside The U.S. Segment had revenue decrease to $600 million, with an operating income margin of 3.7%.

Fiscal 2026 Guidance:

• Revenue projected to be between $5.225 billion and $5.425 billion, with a midpoint of $5.325 billion.
• Adjusted EPS projected to be between $7.95 and $8.25 per share, with a midpoint of $8.1.
• Free cash flow projected to be between $450 million and $500 million, with a midpoint of $475 million. Adjusted EBITDA margin estimated to be approximately 13.7%.

Risks:

• Potential impacts from government shutdowns, including payment delays from some federal customers and temporary DSO elevation.
• Uncertainty around policy and regulatory changes, particularly related to the One Big Beautiful Bill Act and its implementation.

Q: Can you give more color on what's driving the expansion in EBITDA margin even with flat revenue?

A: The margin expansion is due to continued deployment of technology and automation, cost management, and for U.S. Services, savings from severance costs and deployment of technology initiatives. For U.S. Federal, it's from higher volumes providing operating leverage and technology initiatives increasing staff productivity.

Q: How are you thinking about the effects of the government shutdown on your results both in Q1 and the full year?

A: Nearly all programs were deemed essential services, so minimal impact expected. Fewer than a dozen employees were impacted, and they were kept on salary. Funding for some essential programs like VA and USDA is already in place. Payment delays from some federal customers were seen, but October collections were fairly good.

Q: What are your priorities for allocating capital in the short term and type of M&A you're looking for?

A: Priorities include organic investments, maintaining dividends, strategic acquisitions to accelerate growth, and opportunistic share repurchases. Looking for companies that provide access to customer relationships, augment technical capabilities, and enhance business systems capabilities, with a bias toward defense and national security space in U.S. Federal market.

Q: What phase of the opportunities related to Big Beautiful Bill are we in and timing of RFPs?

A: No policy or regulatory updates yet. SNAP is a focus as states need to address payment error rates affecting federal funding. States are pre-planning, and SNAP payment impacts could start in October 2027. RFIs are out, leading to RFPs, and engagement is ongoing.