MAXIMUS, INC. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Contract Developments: Successfully reawarded VA medical disability examination contracts; divested employment services in Australia and South Korea; Board authorized a $200 million increase to share repurchase program.
• Positioning in Government Services: Core business tied to well-established entitlement programs, resilient during transition period; focus on technology modernization and cost-effective program administration across federal and state programs.
• Awards: Selected by Federal Reserve for $76 million contact center services contract; won $123 million contract from National Energy Technology Laboratory for expanded IT services.
• Pipeline and Guidance: Pipeline at $41.4 billion, with ~57% new work and 63% from US Federal Services; updated guidance includes revenue $5.2B - $5.35B, adjusted EPS $5.90 - $6.20, free cash flow $355M - $385M.
• Company Culture and Innovation: Maximus Forward initiative promoting efficiency; AI and data accelerator group; inaugural investment via Maximus Ventures in clinical assessment AI.

Segment Performance

• US Federal Services Segment: Revenue increased 15.3% to $781 million, which is all organic. Operating income margin was 12.7% in Q1 2025 compared to 10.2% in the prior year period.
• US Services Segment: Revenue decreased 7.7% to $452 million. Operating income margin was 9.0% in Q1 2025 vs. 13.5% in the prior year period. The prior year benefited from excess Medicaid volumes now unwound.
• Outside the US Segment: Revenue increased 6.0% year over year to $170 million. Organic growth was 10.7% driven by strength in flagship contracts in the UK. The segment generated $8.1 million of profit, a 4.8% margin, compared to an operating loss of $0.1 million in the prior year period.

Guidance

• Revenue: $5.2 billion to $5.35 billion.
• Adjusted EPS: $5.90 to $6.20 per share, up $0.20 from prior guidance.
• Free cash flow: $355 million to $385 million, up $10 million.
• Segment margins: US Federal expected to be ~11.5% full year; US Services ~11% full year; Outside the US 3% to 5% full year.

Risks

• Uncertainty in federal procurement timing and policy changes affecting Medicaid and other programs.
• Potential impacts of government staffing changes (e.g., resignations/retirements) on procurement processes.

Question and Answer

Q: Discuss strength in Q1 and full-year guidance A: Q1 overperformed, but guidance maintained with disciplined approach; new business assumption shows low dependency on new work for revenue.

Q: Confidence in guidance A: High confidence with careful guidance, low new work dependency (less than 2% of revenue midpoint from new work).

Q: Segment margins A: US Services margin dip in Q1 anticipated, US Federal margin higher in Q1 but expected to normalize; Outside the US margin 3% to 5% full year.

Q: Medicaid dynamics A: Incremental volume from transition, open enrollment impact, importance of subsidies for maintaining enrollment levels.

Q: Veteran assessment business outlook A: Claims inventory stabilized, investment in technology for program support, volume stability expected.

Q: Loan servicing A: Continuity of service maintained, customer satisfaction driving portfolio growth.

Q: Free cash flow rhythm A: Q1 cash outflow due to timing of payments, rest of year expected to have strong cash flows with no unusual quarter-to-quarter considerations.