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MI

MAXIMUS, INC. (MMS)·Q3 2025 Earnings Summary

Executive Summary

  • MMS delivered a strong Q3 FY25 with organic growth and margin expansion: revenue $1.35B (+2.5% YoY), GAAP EPS $1.86, adjusted EPS $2.16; adjusted EBITDA margin rose to 14.7% from 13.1% YoY . Versus S&P Global consensus, MMS posted a material beat on EPS ($2.16 vs $1.535) and topped revenue ($1.35B vs $1.316B)*.
  • Management raised full-year guidance for the third consecutive quarter: FY25 revenue to $5.375–$5.475B, adjusted EBITDA margin to ~13%, and adjusted EPS to $7.35–$7.55; free cash flow (FCF) raised to $370–$390M .
  • Cash flow headwinds are transient: Q3 FCF outflow (-$198M) was driven by payment delays on two large programs; collections exceeded $300M in July on a major federal program and $224M of state unbilled AR moved to billed; management expects strong Q4 FCF and DSO normalization .
  • Stock reaction catalysts: sizable EPS/margin beat, third guidance raise, visibility on cash collections/FCF, and structurally higher Federal segment margin (Q3 18.1%) driven by sustained clinical volumes; early FY26 color signals flattish revenue scenarios but margin at high end of the 10–13% range and lower interest expense tailwind .

What Went Well and What Went Wrong

  • What Went Well

    • Federal strength: U.S. Federal Services revenue +11.4% YoY to $761.2M; segment margin reached 18.1% (new high), reflecting elevated clinical volumes and operating leverage .
    • Profitability and guidance: Adjusted EBITDA margin 14.7% and adjusted EPS $2.16 both improved YoY; FY25 adjusted EPS raised to $7.35–$7.55 and adjusted EBITDA margin to ~13% .
    • Strategic positioning and defense traction: Achieved CMMC Level 2 certification (Aug 19) and won a $77M U.S. Air Force cybersecurity/cloud contract; management emphasized expanding defense/national security pipeline and “purpose-built” delivery model (AI-enabled) .

  • What Went Wrong

    • U.S. Services normalization: Revenue fell 6.9% YoY to $439.8M and margin declined to 10.2% as last year’s Medicaid unwinding tailwind lapped; full-year segment margin now ~10.5% (down from ~11%) .
    • Working capital and FCF: Q3 operating cash outflow (-$183M) and FCF (-$198M) driven by payment delays on two programs; DSO peaked at 96 days (vs 73 in Q2) .
    • Book-to-bill optics: TTM book-to-bill remained 0.8x amid timing of rebids (sensitive to BPO contract cycles), though management argues on-contract growth supports resilience and the sales pipeline rose to $44.7B (63% new work) .

Financial Results

Overall performance vs prior periods and estimates

MetricQ3 2024Q1 2025Q2 2025Q3 2025
Revenue ($B)$1.31 $1.40 $1.36 $1.35
Diluted EPS (GAAP)$1.46 $0.69 $1.69 $1.86
Adjusted Diluted EPS ($)$1.74 $1.61 $2.01 $2.16
Operating Margin (%)10.8% 6.2% 11.2% 12.3%
Adjusted EBITDA Margin (%)13.1% 11.2% 13.7% 14.7%
Free Cash Flow ($M)$164.6 -$103.0 $25.5 -$198.2

Consensus vs actuals (Q3 2025)

MetricConsensusActualSurprise
EPS (Primary, $)1.535*2.16 Beat
Revenue ($B)1.316*1.348 Beat
  • Values with an asterisk were retrieved from S&P Global (GetEstimates).*

Segment breakdown

SegmentQ3 2024 Revenue ($M)Q2 2025 Revenue ($M)Q3 2025 Revenue ($M)Q3 2024 Op Margin (%)Q2 2025 Op Margin (%)Q3 2025 Op Margin (%)
U.S. Federal Services683.3 777.9 761.2 15.5% 15.3% 18.1%
U.S. Services472.3 442.4 439.8 13.0% 12.2% 10.2%
Outside the U.S.159.3 141.5 147.4 (0.9%) 3.4% 4.0%

Key operating and balance sheet KPIs

KPIQ1 2025Q2 2025Q3 2025
Days Sales Outstanding (days)62 73 96
Net Leverage (Debt net of allowed cash / TTM EBITDA)1.8x 1.9x 2.1x
Signed Awards YTD ($B)2.08 2.92 3.37
Contracts Pending ($B)0.41 0.45 1.44
Book-to-Bill (TTM, x)0.7x 0.8x 0.8x
Sales Pipeline ($B)41.4 41.2 44.7
Dividend/Share ($)0.30 (declared) 0.30 (declared) 0.30 (payable Aug 31)

Guidance Changes

MetricPeriodPrevious Guidance (Q2 call/PR)Current Guidance (Q3 PR/call)Change
Revenue ($B)FY25$5.25–$5.40 $5.375–$5.475 Raised
Adjusted EBITDA Margin (%)FY25~11.7% ~13.0% Raised
Adjusted Diluted EPS ($)FY25$6.30–$6.60 $7.35–$7.55 Raised
Free Cash Flow ($M)FY25$355–$385 $370–$390 Raised
Interest Expense ($M)FY25~78 ~81 Raised
Tax Rate (%)FY2528–29 28–29 Maintained
Weighted Avg Shares (M)FY25~58 ~58 Maintained
U.S. Federal Services Margin (%)FY2512.5–13.0 ~15 Raised
U.S. Services Margin (%)FY25~11 ~10.5 Lowered
Outside the U.S. Margin (%)FY253–5 3–5 Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
AI/Tech enablementDeployed AI/ML (AWS Textract) to accelerate VA case prep and NSA dispute resolution; “Maximus Forward” transformation driving efficiency Reinforced tech leverage to scale volumes and margins; co-sponsoring NDIA hackathon; CMMC Level 2 achieved Strengthening
DOGE / ProcurementLimited impact in FY25; cautious on civilian procurement timing; extensions/bridges benefit incumbents Headwinds de minimis (<0.5% FY25 revenue); shift to agency-led efficiency focus and potential contract consolidation Neutral to Slightly Positive
Medicaid/SNAP (OBDBA)Anticipated policy changes could increase engagement volumes; state “Flexibility to Contract” reinstated OBDBA drives twice-yearly expansion eligibility checks (from annual) and codifies work requirements; SNAP error-rate penalties spur outsourcing; bulk of revenue uplift expected FY27; some potential FY26 Emerging Tailwind (FY27)
VA MDE volumesSustained elevated volumes; stability to modest growth outlook Very strong Q3 throughput; expect moderation from peak but sustained demand; industry capacity added Elevated but normalizing
Federal defense/nat secPipeline building; focus on defense health and tech modernization Won $77M USAF cybersecurity/cloud contract; CMMC Level 2 unlocks adjacencies Positive
Cash/DSOQ2 DSO rose to 73 days; expected to peak Q3 with collections in Q4 DSO peaked at 96; collected >$300M in July on major federal program; $224M shifted to billed AR for state contract; strong Q4 FCF expected Improving into Q4

Management Commentary

  • “Another record breaking quarter... adjusted diluted earnings per share reached $2.16... revenue of $1.35 billion is growth of 4.3% on an organic basis.” — Bruce Caswell, CEO .
  • “This quarter's adjusted EBITDA margin is noticeably above the high end of our target range... thanks to our ability to gain operating leverage on incremental volumes.” — David Mutryn, CFO .
  • “Book-to-bill... must be interpreted in the full context of contract timing, backlog dynamics and overall financial performance... revenue has grown 4.3% and adjusted EBITDA 15% [since FY24], underscoring on-contract growth.” — Bruce Caswell .
  • “We made meaningful progress and collected more than $300 million related to this major U.S. Federal program in July... $224 million moving from unbilled AR to billed AR... anticipate collecting this balance in the fourth quarter.” — David Mutryn .
  • “The [OBDBA] work requirements and enhanced eligibility... could lift U.S. Services from mid single digit to high single digit... potentially into low double digit with SNAP/UI opportunities” — Bruce Caswell .

Q&A Highlights

  • OBDBA impact and timing: Management expects the bulk of uplift in FY27 given regulatory timelines; some states may move earlier, but guidance prudently assumes later ramp .
  • Competitive positioning: Emphasized conflict-free status and scale advantages (e.g., enrollment broker presence in ~23 states), creating barriers to entry for Medicaid-related work .
  • Defense focus: Defense and defense health are rising priorities; CMMC Level 2 achieved quickly; Air Force win evidences “right to win” in adjacencies .
  • FY26 outlook: Revenue scenarios roughly in line or slightly below FY25, with margin near the high end of 10–13%; interest expense could be $20–$25M lower, adding ~$0.30 EPS tailwind .
  • DOGE impacts: Pricing/scope changes to date are small—less than 0.5% of FY25 revenue; focus shifting to efficiency and performance-based models .

Estimates Context

  • Q3 FY25 results beat Wall Street consensus (S&P Global): EPS $2.16 vs $1.535; revenue $1.348B vs $1.316B*. Implication: upward estimate revisions likely for FY25 EPS and margin trajectory given guidance raise and visible Q4 cash collections .
  • Values with an asterisk were retrieved from S&P Global (GetEstimates).*

Key Takeaways for Investors

  • Quality beat with margin expansion: Adjusted EBITDA margin 14.7% and adjusted EPS $2.16 demonstrate operating leverage on elevated federal clinical volumes; guidance lifted across revenue, EPS, and FCF .
  • Cash flow inflection near term: Q3 DSO spike is temporary; July collections >$300M and state contract billing shift support strong Q4 FCF and net leverage trending below 2x by year-end .
  • Federal structurally stronger: U.S. Federal Services margin tracking ~15% for FY25 (above prior 12.5–13% view), underpinning earnings durability into FY26 even under flattish revenue scenarios .
  • U.S. Services to reaccelerate later: Medicaid/SNAP policy changes (OBDBA) likely to lift engagement volumes; management frames the bigger impact in FY27, with optionality for earlier state moves .
  • Defense/National Security optionality: CMMC Level 2 and initial USAF win broaden addressable market; emerging pipeline could contribute in FY26 and more meaningfully in FY27 .
  • Capital returns: Dividend maintained at $0.30/share; ~$65.8M remains under repurchase authorization, providing opportunistic buyback capacity as liquidity normalizes .
  • Risk checks: Procurement/budget headwinds remain watch items, but current financial impact small; book-to-bill optics affected by timing, while pipeline rose to $44.7B (63% new work) .

Notes:

  • All financial and operational figures are sourced from the Q3 FY25 press release/8-K and earnings call, and prior quarters’ materials as cited.
  • Consensus estimates marked with an asterisk were retrieved via S&P Global (GetEstimates).*