Maximus, Inc. Q2 FY2026 earnings call

• David Mutryn characterized the second quarter as strong execution with sequential step-up to profitability, technology investments contributing to bottom-line returns, and increased capital deployment toward share repurchases. Bruce Caswell focused on three areas: growing emphasis on fraud prevention and program integrity in government programs, acceleration of AI and automation across Maximus, Inc. with customer-focused proof points, and progress with state customers on Medicaid community engagement, SNAP, and unemployment insurance administration. Also discussed award metrics and pipeline with year-to-date signed contract awards of $913 million and a total pipeline of $56.8 billion at March 31.

Maximus, Inc. reported revenue of $1.31 billion in the second quarter. U.S. Federal Services segment had revenue of $753 million, operating income margin 17.6% (up from 15.3% prior-year); U.S. Services segment had revenue of $416 million, operating income margin 9.3% (excluding $6.9 million non-cash charge, margin would be 10.9%); Outside the U.S. segment had revenue of $137 million and an operating loss of $3.1 million. Cash provided by operating activities was $190 million and free cash flow was $179 million for the quarter.

• Raising fiscal year 2026 earnings outlook for the second consecutive quarter, reiterating revenue and free cash flow guidance. Fiscal year 2026 revenue expected to range between $5.2 billion and $5.35 billion. Full-year adjusted EBITDA margin guidance now approximately 14.2% (20 basis point improvement from prior guidance). Adjusted EPS guidance increases by $0.20 to range between $8.05 and $8.55 per share. Free cash flow expected to range between $450 million and $500 million. U.S. Federal Services full-year segment operating margin expected to be 17.5%, U.S. Services expected to be approximately 10%, Outside the U.S. expected to be roughly breakeven. Updated near-term adjusted EBITDA margin target range raised to 12% to 15%.

Q: Any more color on the higher DSOs in the quarter and thinking about capacity for share buybacks considering the cash flow lumpiness?

A: DSO stems from a major federal customer with complex invoicing requirements, may remain flat in Q3 before declining in Q4. Near-term cash flow, valuation, and near-term M&A opportunities factor into share repurchase calculations.

Q: Are you currently marketing or planning to bring to market other solutions for SNAP?

A: The heart is the Accuracy Assistant tool with services wrapped around it. On Medicaid, there's a community engagement tool.

Q: What are the dynamics that have driven revenue declines in the first two quarters of the year and why are you confident in a return to growth by Q4?

A: Year-over-year comparisons expected to improve, Q2 sequentially up from Q1. Confidence in Q4 driven by H.R. 1-related activities.

Q: More color on why margin outlook is higher on U.S. Federal based on tech initiatives and efficiency gains compared to U.S. Services?

A: Federal contracts larger, more impactful for margins. State customers more cautious with AI adoption due to public trust and state regulations. U.S. Services contracts more complex with multiple state system integrations and state customers having limited bandwidth.

Q: Any updates on the VBA contract? Is a recompete still expected in the summer, or do you think there will most likely be an extension? And what are you looking to accomplish or learn at the industry day?

A: Current contract goes through December 31, 2026. VA hasn't released formal timeline for rebid; expect to learn at industry day. May learn if extension is needed. At industry day, expect to learn rebid timeline.

Q: On the federal side, are there any other tough comps to lap in these last two quarters?

A: Fiscal year 2025 Q3 (June) was strong on surge in clinical volumes, tough comp, Q4 to a lesser extent.