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MI

MAXIMUS, INC. (MMS)·Q1 2025 Earnings Summary

Executive Summary

  • Maximus delivered a solid Q1 FY25: revenue grew 5.7% to $1.40B; adjusted EBITDA margin was 11.2%; GAAP EPS was $0.69, while adjusted EPS rose to $1.61, aided by strong U.S. Federal Services volumes and improved OUS profitability, offset by divestiture-related charges in OUS that lifted the tax rate .
  • Guidance raised: FY25 adjusted EPS to $5.90–$6.20, adjusted EBITDA margin to 11.2%, and free cash flow to $355–$385M; revenue adjusted to $5.2–$5.35B to reflect the OUS divestiture ($100M) partially offset by stronger organic growth .
  • Strategic risk overhangs eased: government withdrew early recompete of the CMS CCO contract (enabling continuity through 2031), and VA MDE contracts were successfully re-awarded; both are important supports to revenue durability .
  • Capital returns accelerated: 3.1M shares repurchased for $237M in the quarter; a further 0.7M shares for $52.9M post-quarter; net leverage remains conservative at 1.8x (credit agreement basis) despite buybacks .

What Went Well and What Went Wrong

  • What Went Well

    • U.S. Federal beat: segment revenue up 15.3% to $780.7M with all organic growth; operating margin expanded to 12.7% on elevated clinical program volumes (“outsized volumes”) . CEO: “We had winning outcomes on the two large recompetes… the recent divestiture improves the health and predictability of our Outside the U.S. Segment.” .
    • OUS profitability inflected: operating profit of $8.1M (4.8% margin) vs. loss in prior year, reflecting portfolio shaping and divestitures .
    • Guidance raised on multiple drivers: strong Q1, slightly accretive OUS divestiture to FY25 margin/EPS, and share repurchases; CFO quantified that buybacks/interest/tax add ~+$0.10, while Q1 overperformance and divestiture accretion add >+$0.10 to the full-year raise .

  • What Went Wrong

    • U.S. Services normalization: revenue fell 7.7% to $452.3M and margin fell to 9.0% as prior-year Medicaid unwind volumes lapped and open enrollment seasonality weighed (both anticipated in outlook) .
    • Free cash flow outflow (seasonal): FCF was -$103.0M and operating cash flow -$80.0M due to expected timing effects in Q1; DSO edged up to 62 days from 61 days at FY24 year-end .
    • Higher tax and interest outlook: FY25 tax rate now 28–29% (Q1 rate impacted by non-deductible divestiture charges) and interest expense raised to $75M on higher debt supporting buybacks .

Financial Results

MetricQ3 FY24Q4 FY24Q1 FY25
Revenue ($USD Billions)$1.31B $1.32B $1.40B
Diluted EPS ($)$1.46 $1.19 $0.69
Adjusted Diluted EPS ($)$1.74 $1.46 $1.61
Adjusted EBITDA Margin (%)13.1% 11.0% 11.2%

Segment breakdown

SegmentMetricQ3 FY24Q4 FY24Q1 FY25
U.S. Federal ServicesRevenue ($M)$683.3 $675.1 $780.7
Operating Margin (%)15.5% 11.1% 12.7%
U.S. ServicesRevenue ($M)$472.3 $463.6 $452.3
Operating Margin (%)13.0% 11.1% 9.0%
Outside the U.S.Revenue ($M)$159.3 $177.2 $169.8
Operating Margin (%)(0.9%) 4.8% 4.8%

KPIs and balance sheet highlights

KPIQ1 FY25
Book-to-bill (TTM / quarterly)0.7x TTM; 1.5x in-quarter
Sales pipeline$41.4B (57% new work)
DSO62 days (61 days at 9/30/24)
Share repurchases3.1M shares for $237M in Q1; 0.7M for $52.9M post-Q1
Net leverage (credit agreement)1.8x (vs. 1.4x at 9/30/24)
Cash from ops / FCF (Q1)-$80.0M / -$103.0M

Estimates vs. results

  • S&P Global consensus retrieval was attempted but unavailable due to a request limit; therefore, we cannot present beat/miss vs. Wall Street estimates for Q1 FY25 at this time. Values would normally be sourced from S&P Global.

Guidance Changes

MetricPeriodPrevious Guidance (11/20/24)Current Guidance (2/6/25)Change
RevenueFY25$5.275–$5.425B $5.2–$5.35B (adjusted for ~$100M OUS divestiture; partially offset by organic growth) Adjusted lower for divestiture; organic uplift
Adjusted EBITDA MarginFY25~11.0% ~11.2% Raised
Adjusted Diluted EPSFY25$5.70–$6.00 $5.90–$6.20 Raised (+$0.20 midpoint)
Free Cash FlowFY25$345–$375M $355–$385M Raised (+$10M midpoint)
Interest ExpenseFY25~$65M ~$75M Higher (buyback-driven)
Tax RateFY25~25% 28–29% (Q1 elevated by divestiture charges) Higher
Weighted Avg SharesFY25~61M ~58M Lower (repurchases)
Segment margin – U.S. FederalFY25n/a~11.5% New disclosure
Segment margin – U.S. ServicesFY25n/a~11% New disclosure
Segment margin – Outside the U.S.FY253–5% (post-divestiture view on 12/10/24) 3–5% Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 FY24 and Q4 FY24)Current Period (Q1 FY25)Trend
Federal clinical volumes/marginsQ3 FY24: Federal revenue +17% with 15.5% margin on strong clinical demand ; Q4 FY24: Federal margin 11.1%, momentum into FY25 guidance .Federal revenue +15.3% to $780.7M; margin 12.7% on “outsized volumes” in smaller clinical programs .Strong and sustained; margins elevated but expected to normalize modestly .
Medicaid unwind normalization (U.S. Services)Q3 FY24: benefited from excess volumes; margin 13.0% . Q4 FY24: margin 11.1% without excess volumes .Revenue -7.7%; margin 9.0% as prior-year excess volumes lapped and open enrollment seasonality; FY25 full-year ~11% margin reiterated .Normalizing; sequential margin improvement anticipated through FY25 .
Contracting risk and recompetesQ4 FY24: backlog and pipeline shaped by CCO/MDE timing .CCO early recompete withdrawn; VA MDE re-awarded (effective 1/1/25), easing key overhangs .Risk reduced; durability reinforced.
Policy/macro and procurementQ4 FY24: Balanced FY25 outlook amid transition .CEOs remarks: resilient exposure to bipartisan programs; monitoring CR/appropriations and procurement staffing; limited FY25 revenue from new work (<2%) .Cautious forecasting despite healthy deal flow.
Technology/AI initiativesNot specifically highlighted in Q3/Q4 releases .“AI and data accelerator” established; venture investment in human‑in‑the‑loop AI for clinical assessments; TXM wins at Federal Reserve and DOE’s NETL (AI/ML scope) .Increasing strategic emphasis on AI-enabled delivery.

Management Commentary

  • Strategic positioning: “We believe that Maximus has a favorable and unique position in government services… as our government customers… face uncertainties… Maximus is in a superior strategic position to provide value-added solutions” — Bruce Caswell, CEO .
  • Contract durability: Government canceled early CCO recompete, clearing a path to continue through 2031; VA MDE contracts re-awarded effective Jan 1, 2025 .
  • AI and innovation: “Our Chief Digital and Information Officer… established an AI and data accelerator… designed to speed up the development and deployment of AI-driven solutions… with governance” .
  • Portfolio shaping: OUS divestitures “reduce volatility and improve profitability,” consistent with focus on margin stability .
  • Capital allocation: “We significantly increased our pace of share repurchases… enabled by our strong balance sheet” — CFO David Mutryn .

Q&A Highlights

  • Q1 outperformance and guidance raise: CFO quantified the midyear raise drivers (~$0.10 from buybacks/interest/tax and >$0.10 from Q1 overperformance and OUS accretion), maintaining disciplined assumptions for Q2–Q4 .
  • Confidence in FY25: Low reliance on new awards (<2% of revenue midpoint) supports visibility; conservative posture amid procurement timing risks .
  • Policy/administration changes: Core programs (Medicare, VA benefits, Social Security) resilient; limited pockets of direct exposure; pipeline flow “normal course,” with some agencies using extensions/bridges that favor incumbents .
  • Segment margin cadence: U.S. Services Q1 trough due to open enrollment staffing and tough comps; full-year ~11% intact. Federal Q1 margin above full-year pace; expect ~11.5% for FY25 .
  • Medicaid to exchanges flow: Management highlighted a 21.4M ACA enrollment figure and strong state-level increases (e.g., NY +35%), supporting exchange-related volumes as Medicaid redeterminations progress .
  • VA MDE volumes: Claims inventory remained elevated (~953k); steady-to-modest growth embedded in guidance; ongoing tech investment to improve throughput and quality .
  • Free cash flow rhythm: Q1 outflows reflect incentive payments and higher December AR; remaining quarters expected to deliver strong cash generation .

Estimates Context

  • We attempted to pull S&P Global (Capital IQ) consensus for Q1 FY25 EPS and revenue, but the service returned a daily request limit error at the time of query. As a result, beat/miss vs. Street consensus cannot be presented here. If desired, we can refresh and update when S&P Global data becomes available.

Key Takeaways for Investors

  • Federal engine running hot: Elevated clinical volumes drove revenue/margin upside in U.S. Federal, with full-year margin now guided to ~11.5% despite Q1 above-trend levels .
  • U.S. Services normalization: Medicaid unwind tailwinds have lapped; management expects sequential improvement to an ~11% full‑year margin; focus on disciplined staffing and open enrollment execution .
  • OUS volatility reduced: Divestitures are accretive to FY25 adjusted margin/EPS and support a steadier 3–5% OUS margin profile .
  • Guidance credibility: FY25 guide raised on multiple levers (Q1 performance, divestiture accretion, buybacks) while keeping low new-work assumptions—leaving room for upside if procurement timing improves .
  • Contract risk overhangs eased: CCO early recompete withdrawn; VA MDE re-awarded—both should support backlog visibility and investor confidence in revenue durability .
  • Cash flow seasonality vs. full-year power: Q1 FCF outflow was expected; FY25 FCF maintained at $355–$385M; watch DSO normalization and state contract extension execution in 2H .
  • Strategic AI push as differentiator: AI/data accelerator and human‑in‑the‑loop investments target productivity and quality in clinical programs; early wins (TXM at Federal Reserve; NETL AI/ML scope) support the modernization narrative .

Appendix: Additional Relevant Press Releases (Q1 FY25 timeframe)

  • VA MDE re-award: VES (a Maximus company) re-awarded MDE contracts across Regions 1–4 effective Jan 1, 2025, with scope sufficient for current/anticipated volumes .
  • OUS divestiture: Sale of Australia/South Korea completed Dec 10, 2024; revenue run-rate ~$120M removed, FY25 revenue guidance impact ~$100M; transaction slightly accretive to FY25 adjusted EBITDA margin and adjusted EPS .

All citations:

  • Q1 FY25 press release/8‑K exhibit: ; -
  • Q2 FY25 press release (for context/trend): -
  • Q3 FY25 press release (for context/trend): -
  • FY24 Q3 press release: -
  • FY24 Q4 press release: -
  • VA MDE re-award press release: -
  • Earnings call transcript (Q1 FY25): -