Maximus ((MMS)) has held its Q1 earnings call. Read on for the main highlights of the call.
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Maximus’ recent earnings call revealed a generally positive sentiment, underscored by their robust first-quarter results and strategic moves that bolstered profitability. While the company celebrated significant contract wins and the divestiture of non-core operations, challenges in the US Services segment and cash flow management presented some concerns.
Strong First Quarter Results
Maximus started the fiscal year with impressive first-quarter results, reporting a revenue of $1.40 billion, marking a 5.7% year-over-year growth, with organic growth slightly higher at 6.3%. The adjusted earnings per share (EPS) climbed to $1.61, an increase from $1.34 in the previous year, showcasing the company’s solid financial footing.
Successful Contract Recompetes
The company secured favorable outcomes on key contracts, such as the CMS contact center operations and VA medical disability examination work. These contracts are expected to sustain through 2031 and have been reawarded for an additional two years, demonstrating Maximus’ strong capabilities in managing government services.
Divestiture of Non-core Operations
Maximus completed the divestiture of its employment services businesses in Australia and South Korea. This strategic move is anticipated to reduce volatility and enhance profitability for the company, particularly in its operations outside the US.
Increase in Share Repurchase Program
The Board of Directors authorized a $200 million increase in the share repurchase program, reflecting confidence in the company’s future prospects. Approximately $290 million has already been deployed in share repurchases since the start of the fiscal year.
New Contract Wins and Pipeline Strength
Adding to its strong pipeline, Maximus secured new contracts, including a $76 million deal with the Federal Reserve System and a $123 million contract with the National Energy Technology Laboratory. These wins highlight the company’s robust position in the government services sector.
US Services Segment Revenue Decline
Despite overall positive results, the US Services segment saw a 7.7% decline in revenue to $452 million. The operating income margin also fell from 13.5% to 9.0%, primarily due to the completion of the Medicaid unwinding exercise.
Cash Flow Challenges
Maximus faced cash flow challenges, with cash used in operating activities amounting to $80 million and a free cash flow outflow of $103 million for the quarter ended December 31, 2024. These figures reflect the expected seasonality and timing of payments, which the company aims to address moving forward.
Higher Effective Tax Rate
The quarter saw a higher effective tax rate due to charges related to divestitures, impacting adjusted EPS. This factor is indicative of the financial intricacies that accompany strategic business adjustments.
Forward-Looking Guidance
The guidance for fiscal 2025 projects strong financial results, with an expected revenue increase of 5.7% to $1.40 billion and an adjusted EBITDA margin of 11.2%. The US Federal Services segment is expected to lead growth with a 15.3% revenue increase, and the total pipeline of opportunities is valued at $41.4 billion, with 57% representing new work. Adjusted EPS is forecasted to rise to between $5.90 and $6.20 per share, underlining Maximus’ optimistic outlook.
In summary, Maximus’ earnings call depicted a company on a solid growth trajectory, buoyed by strategic contract wins and divestitures that improved profitability. While certain segments faced challenges, the overall sentiment was positive, with forward-looking guidance suggesting continued strength in government services and financial performance.
