Maximus NYSE: MMS raised its fiscal 2026 earnings outlook for the second consecutive quarter after reporting second-quarter results that management said reflected stronger profitability, operating efficiencies from automation and artificial intelligence, and increased capital deployment toward share repurchases.
The government services company reported second-quarter revenue of $1.31 billion, which Chief Financial Officer David Mutryn said was consistent with expectations and on track with the company’s full-year revenue guidance. Adjusted EBITDA margin was 14.4%, compared with 13.7% in the prior-year period, while adjusted earnings per share rose to $2.07 from $2.01.
Mutryn said the quarter showed “clear evidence” that technology investments are contributing to bottom-line returns. He pointed to automation and AI tools as drivers of margin improvement, including in a dispute resolution program for a government customer where automation has created operating leverage.
Guidance Raised as Margins Improve
Maximus reiterated its fiscal 2026 revenue guidance of $5.2 billion to $5.35 billion and its free cash flow guidance of $450 million to $500 million. The company raised its full-year adjusted EBITDA margin outlook to approximately 14.2%, up 20 basis points from prior guidance, and increased its adjusted EPS forecast by 20 cents to a range of $8.25 to $8.55.
Mutryn said the midpoint of the updated earnings guidance represents 14% year-over-year growth. The company also raised its near-term adjusted EBITDA margin target range to 12% to 15%, from a prior range of 10% to 13%.
“Much of the improvement has come from technology enhancements and cost discipline that we believe have staying power,” Mutryn said. He added that Maximus expects to operate toward the upper end of the new range during periods of stable volumes and continued technology leverage, though new program ramps and mix can affect margins in any given year.
Federal Segment Margins Rise Despite Tough Comparisons
The U.S. Federal Services segment generated second-quarter revenue of $753 million, down from $778 million in the prior-year period. Mutryn said last year’s quarter benefited from elevated natural disaster support that has not recurred at the same levels. Excluding that work, the segment grew 1.5% organically year over year.
Operating income margin in U.S. Federal Services improved to 17.6% from 15.3% a year earlier. Mutryn said the result reflected technology initiatives that help decouple labor costs from the company’s ability to process higher volumes. Maximus now expects the segment’s full-year operating margin to be approximately 17.5%.
The U.S. Services segment reported revenue of $416 million, compared with $442 million a year earlier. Segment operating margin was 9.3%, including a $6.9 million non-cash impairment charge tied to capitalized software assets for a prior customer contract. Excluding that charge, Mutryn said the margin would have been 10.9%.
The Outside the U.S. segment reported revenue of $137 million and an operating loss of $3.1 million. Mutryn said Maximus remains focused on building scale in the United Kingdom, Canada and the Gulf region, which are the geographies that remain after the company’s reshaping efforts. The company expects the segment to be roughly break even for the full year.
Cash Flow, Receivables and Buybacks in Focus
Maximus generated $190 million of cash from operating activities and $179 million of free cash flow in the second quarter. Days sales outstanding remained elevated at 78 days due to administrative delays at a major federal customer, according to Mutryn.
In response to an analyst question, Mutryn said the same customer had contributed to temporarily higher DSO in fiscal 2025. He described the work as a large program with complex, data-intensive invoicing requirements and said collections had slowed as Maximus worked with the customer on “new and evolving requirements,” some of which are retroactive and may require rework of prior invoices.
“We’re operating under a funded contract, we do have full confidence that the outstanding invoices will be collected,” Mutryn said. He said DSO may remain elevated at June 30 before improving in the fourth fiscal quarter, with the company expecting DSO to finish fiscal 2026 below 70 days.
Maximus ended the quarter with total debt of $1.55 billion and a consolidated net total leverage ratio of 1.8 times, below its target range of 2 to 3 times. The company repurchased about 1.4 million shares for $111 million during the quarter and bought an additional 0.6 million shares for $40 million after quarter-end through May 1. Maximus also announced a board-authorized refresh of its share repurchase program for up to $400 million, effective May 11.
Mutryn said the company prioritizes repurchases when it believes the share price does not reflect the business’s intrinsic value, while also considering liquidity, potential mergers and acquisitions, and leverage targets.
AI and Automation Central to Strategy
President and Chief Executive Officer Bruce Caswell said Maximus is seeing results from a multiyear transformation initiative that streamlined parts of the business and funded technology investments, particularly in AI-enabled automation.
Caswell said those investments are improving operations across a business that supports “roughly one in three Americans” who rely on programs delivered by Maximus for government customers. He said the company’s second consecutive earnings guidance increase indicates Maximus is “slightly ahead” of its technology leverage goals for the year.
Caswell highlighted the company’s Total Experience Management, or TXM, solution, saying it is gaining attention among government customers. He said one federal agency representative described TXM as the most sophisticated AI deployment in a contact center environment they had seen to date.
He also cited an internally developed AI solution for high-volume claim processing on a program where Maximus serves as an independent dispute resolution entity. Caswell said nearly half of the effort required to process claims is now handled through automation, allowing staff to focus on accuracy and more complex cases.
Caswell emphasized that Maximus is using AI to improve program integrity, speed and consistency while reducing friction for people served by government programs. He also said the company is applying AI internally across back-office operations, legal, human resources and enterprise technology development.
Pipeline Includes State Work Requirement and SNAP Opportunities
Caswell said government customers are increasingly focused on fraud prevention and program integrity, using analytics, automation, data matching and AI-supported workflows to detect issues earlier rather than relying only on after-the-fact detection.
On the state side, Caswell said Maximus is seeing traction related to H.R. 1, which he referred to as the Working Families Tax Cut Act. He said two states are working with Maximus on arrangements that could use existing contracts to support Medicaid Community Engagement compliance. One potential example could drive a more than 30% increase in current program revenue, subject to final scope and implementation timing, he said.
Caswell said states are waiting for final Medicaid community engagement regulations, expected next quarter, before finalizing operating plans. He also said Maximus is making progress with states on its SNAP Accuracy Assistant offering, which is designed to help lower payment error rates.
Year-to-date signed contract awards totaled $913 million of total contract value as of the end of the second quarter, with another $322 million of awarded but not yet signed contracts. The trailing 12-month book-to-bill ratio was approximately 0.5 times. Maximus reported a total sales pipeline of $56.8 billion as of March 31, including $4.6 billion in proposals pending and $1.5 billion in proposals in preparation.
Caswell said federal procurement timelines remain difficult to forecast, particularly in civilian agencies, due to a shortage of acquisition professionals and increased protests. Still, he said Maximus believes momentum is beginning to build and that the company is well positioned heading into next year.
About Maximus NYSE: MMS
Maximus, Inc NYSE: MMS is a global provider of government services focused on delivering health and human services programs. The company partners with federal, state, and local agencies to administer and manage programs that support individuals and families across various stages of life. Key service areas include eligibility determination and enrollment services for Medicaid, Medicare, Children's Health Insurance Program (CHIP) and other public assistance programs, as well as call center operations, case management and program integrity solutions.
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