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MI

MAXIMUS, INC. (MMS)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 FY25 delivered revenue of $1.36B (+1.0% YoY; +3.0% organic) and adjusted diluted EPS of $2.01, with operating margin at 11.2% and adjusted EBITDA margin at 13.7%, reflecting strong U.S. Federal Services performance and AI-enabled productivity gains .
  • Management issued a second consecutive FY25 guidance raise: revenue to $5.25–$5.40B, adjusted EBITDA margin ~11.7%, and adjusted EPS to $6.30–$6.60; free cash flow held at $355–$385M; interest expense now $78M; tax rate unchanged at 28–29% .
  • Versus S&P Global consensus, Q2 beat materially: Primary EPS 2.01 vs 1.38* and revenue $1.362B vs $1.294B*; estimate coverage was limited (two estimates), amplifying headline surprise . Values retrieved from S&P Global.
  • Stock-relevant narrative: strong Federal segment margins from clinical assessment volumes and automation, cautious H2 outlook amid procurement delays and pricing concessions requests, and continued buybacks ($72.8M in Q2) underpin EPS trajectory .

What Went Well and What Went Wrong

  • What Went Well

    • Federal segment strength: revenue +10.9% YoY to $777.9M, operating margin 15.3% on higher clinical assessment volumes and efficiency gains .
    • AI-driven execution: CEO highlighted automation on Federal No Surprises Act dispute resolution and VA MDE records processing using AWS Textract and GovCloud to boost throughput and margins (“great early indicator that investments… in machine learning and artificial intelligence are really starting to pay off”) .
    • Guidance raised again: FY25 adjusted EPS +$0.40 to $6.30–$6.60, adjusted EBITDA margin up 50bps to ~11.7%, revenue +$50M (organic) .

  • What Went Wrong

    • U.S. Services normalization: revenue -9.0% YoY to $442.4M and margin down to 12.2% as outsized Medicaid unwinding volumes lapped; management expects sequential improvement but below prior-year exceptional levels .
    • Cash flow timing: DSO rose to 73 days (from 62 in Q1) tied to a delayed state contract extension; CFO expects catch-up by Q4; Q2 free cash flow was $25.5M vs $105.2M in prior-year quarter .
    • Procurement friction and concessions: management cited delays in civilian agency awards and requests for pricing concessions, necessitating cautious H2 guidance posture .

Financial Results

Quarterly progression (oldest → newest)

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Billions)$1.316 $1.403 $1.362
Operating Margin (%)8.5% 6.2% 11.2%
Adjusted EBITDA Margin (%)11.0% 11.2% 13.7%
Diluted EPS ($)$1.19 $0.69 $1.69
Adjusted Diluted EPS ($)$1.46 $1.61 $2.01

Year-over-year (Q2)

MetricQ2 2024Q2 2025
Revenue ($USD Billions)$1.348 $1.362
Operating Margin (%)9.5% 11.2%
Adjusted EBITDA Margin (%)11.7% 13.7%
Diluted EPS ($)$1.31 $1.69
Adjusted Diluted EPS ($)$1.57 $2.01

Estimates vs Actual (S&P Global)

MetricConsensus (Q2 2025)Actual (Q2 2025)
Primary EPS ($)1.38*2.01*
Revenue ($USD Billions)1.294*1.362*
EPS - # of Estimates2*—
Revenue - # of Estimates2*—
Values retrieved from S&P Global.

Segment Breakdown (Q2 YoY)

SegmentRevenue Q2 2024 ($MM)Revenue Q2 2025 ($MM)Operating Margin Q2 2024Operating Margin Q2 2025
U.S. Federal Services$701.7 $777.9 11.9% 15.3%
U.S. Services$486.1 $442.4 14.0% 12.2%
Outside the U.S.$160.5 $141.5 0.4% 3.4%

KPIs and Operating Metrics

KPIQ4 2024Q1 2025Q2 2025
Days Sales Outstanding (DSO) (days)61 62 73
Cash from Operations ($MM)$163.8 $(80.0) $42.7
Free Cash Flow ($MM, Non-GAAP)$131.9 $(103.0) $25.5
Book-to-Bill (TTM, x)0.4x 0.7x 0.8x
Sales Pipeline ($B)$54.3 $41.4 $41.2
Signed Awards YTD ($B)$2.2 $2.08 $2.92
Contracts Pending (awarded, unsigned) ($MM)$312 $410 $451
Share Repurchases (Shares/$MM)0.9M / $73.1 3.1M / $237.0; +0.7M / $52.9 post-Q1 ~0.9M / $72.8
Net Leverage (Debt net of allowed cash / EBITDA, x)1.4x 1.8x 1.9x
Cash & Equivalents ($MM)$183.1 $72.7 $108.1
Gross Debt ($B)$1.15 $1.40 $1.51
Dividend per Share ($)$0.30 (declared) $0.30 (paid 2/28/25) $0.30 (payable 5/31/25)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($B)FY 2025$5.20–$5.35 $5.25–$5.40 Raised
Adjusted EBITDA Margin (%)FY 2025~11.2 ~11.7 Raised
Adjusted Diluted EPS ($)FY 2025$5.90–$6.20 $6.30–$6.60 Raised
Free Cash Flow ($MM)FY 2025$355–$385 $355–$385 Maintained
Interest Expense ($MM)FY 2025~$75 ~$78 Raised
Tax Rate (%)FY 202528–29 28–29 Maintained
Weighted Avg Shares (MM)FY 2025~58 ~58 Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’24, Q1’25)Current Period (Q2’25)Trend
AI/Technology initiativesEstablished “Maximus Forward” transformation; FY25 guide framed around 10–13% adjusted EBITDA near-term range ; Q1 detailed AI/data accelerator, venture investment in human-in-the-loop clinical assessment tech; TXM wins at Fed entities Concrete AI deployments: No Surprises Act arbitration automation; VA MDE records processing via AWS Textract/GovCloud; margins benefited from throughput Strengthening execution
Procurement dynamicsFY25 outlook cautious amid transition; pipeline $54.3B; low book-to-bill due to rebid timing Delays at civilian agencies; push to GSA-level vehicles; incumbents benefit from bridges; proposals in prep/pending up ~25% QoQ Mixed; delays but bridge tailwinds
Federal macro (DOGE/USDS)Q1: USDS/DOGE focus on modernization; resilient entitlement programs (Medicare/VA/SS) Limited impact to date (~$4M FY25 revenue); pricing concession requests emerging; cautious H2 stance Manageable headwinds
Medicaid/State servicesQ4: unwinding concluded; segment margins normalized ; Q1: open enrollment seasonality; expected full-year ~11% margin U.S. Services revenue down YoY on lapping excess volumes; sequential margin improvement; flexibility-to-contract reaffirmed Normalization; selective growth
VA MDE volumesQ1: successor contracts secured; stable-to-modest growth outlook Continued strong clinical assessment volumes contributed to Federal margins Sustained demand
TXM adoptionQ1: TXM win at Federal Reserve/NETL New AWS-integrated TXM capabilities announced in June (post-Q2) Building commercial momentum

Management Commentary

  • “Adjusted EBITDA margin was 13.7% in Q2 and is in the upper end of our near-term guidance range… showing we're delivering on an earlier commitment.” — Bruce Caswell .
  • “We recently implemented an AI solution… to streamline the independent dispute resolution process… helped clear a backlog… ensured SLA targets were met, reduced temporary labor costs… boosted throughput.” — Bruce Caswell (Federal No Surprises Act) .
  • “By leveraging tools such as AWS, GovCloud and Amazon Textract, Maximus developed a proprietary AI and machine learning-powered records processing system.” — Bruce Caswell (VA MDE) .
  • “Our guidance increases by $50 million… adjusted EBITDA margin… now 11.7%… adjusted EPS increases by $0.40… $6.30 to $6.60 per share.” — David Mutryn .
  • “We have fielded requests for pricing concessions on certain contracts… maintaining a balanced stance… supporting our customers… while leaning into opportunities to shape the future of certain programs.” — Bruce Caswell .

Q&A Highlights

  • Guidance philosophy: Raise reflects Q2 overperformance; H2 held cautious amid macro uncertainties; expected step-down from exceptional Q2 due to moderation in clinical volumes and seasonality (e.g., FEMA) .
  • Margin drivers: Volumes plus automation drove exceptional Q2 margins; management expects moderation from Q2 to Q3 as some outsized volumes normalize .
  • Pipeline and awards: Civilian delays and shift to GSA vehicles; incumbents benefit from bridges; proposals in prep/pending up ~25%; no significant impact from President’s budget on current civilian portfolio .
  • Outside the U.S.: Organic growth driven by UK Functional Assessment Services contract; improved profitability post-divestitures .
  • Cash flow cadence: DSO uptick from single state contract extension delay (7 days impact); catch-up expected in Q4; broader payment delays limited .
  • Student loans: Portfolio servicing continuity expected; contracting model unlikely to change; portfolio has grown with customer satisfaction .

Estimates Context

  • Q2 FY25 actuals vs consensus: Primary EPS 2.01 vs 1.38*; revenue $1.362B vs $1.294B*. Limited estimate coverage (two estimates) magnified headline surprise. Likely upward revisions to FY25 EPS and Federal segment margin assumptions given sustained clinical volumes and AI-enabled efficiency . Values retrieved from S&P Global.

Key Takeaways for Investors

  • Federal engine driving upside: Double-digit revenue growth and 15.3% margin in U.S. Federal Services, supported by higher clinical volumes and automation; expect moderation in H2 but margins still above prior-year levels .
  • EPS trajectory supported by buybacks and execution: Q2 adjusted EPS $2.01 vs $1.57 YoY, with ~$72.8M repurchases in Q2 and net leverage at 1.9x, below 2–3x target range .
  • Cash flow timing: Elevated DSO (73 days) from a single state extension should unwind by Q4; FY25 FCF guidance unchanged at $355–$385M, suggesting back-half cash conversion .
  • Guidance intentionally conservative for H2: Raise reflects Q2 beat; no reliance on new work to meet FY25 outlook; watch civilian procurement pace and concession requests as potential near-term volatility factors .
  • U.S. Services normalization largely behind: Sequential margin improvement and flexibility-to-contract reaffirmation provide medium-term stability despite lapping Medicaid unwinding .
  • Outside U.S. reshaped and stabilizing: Divestitures reduced volatility; organic growth in UK flagship programs improving profitability (3.4% margin in Q2 vs 0.4% YoY) .
  • Technology narrative strengthening: Tangible AI use-cases (No Surprises Act, VA MDE) and TXM momentum position MMS to benefit from modernization and performance-based contracting priorities .