Maximus (MMS 5.18%), a global provider of government services, reported fiscal third quarter 2025 earnings on August 7, 2025. The company’s headline news was a sharp outperformance on both non-GAAP earnings per share and GAAP revenue. Adjusted diluted EPS reached $2.16, Adjusted diluted EPS was up 24.1% year-over-year and 40.7% ahead of the analyst estimate (non-GAAP). Revenue (GAAP) rose 2.5% year over year to $1.35 billion, beating consensus forecasts by $32.9 million (GAAP). The quarter was defined by robust execution in the U.S. Federal Services segment and its third consecutive guidance raise for FY2025, even as Free cash flow (non-GAAP) fell well below typical levels due to payment timing. Overall, it was a quarter marked by strong operational results but also caution around cash flow and certain market headwinds.
| Metric | Q3 2025 | Q3 2025 Estimate | Q3 2024 | Y/Y Change |
|---|---|---|---|---|
| EPS (Adjusted Diluted, Non-GAAP) | $2.16 | $1.54 | $1.74 | 24.1% |
| Revenue (GAAP) | $1.35 billion | N/A | $1.31 billion | 3.1% |
| Operating Margin (GAAP) | 12.3% | 10.8% | 1.5 pp | |
| Adjusted EBITDA Margin (Non-GAAP) | 14.7% | 13.1% | 1.6 pp | |
| Free Cash Flow (Non-GAAP) | ($198.2 million) | $164.6 million | (-220.5%) |
Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q2 2025 earnings report.
About Maximus: Business Model and Focus Areas
Maximus specializes in providing outsourced services and technology solutions to governments. Its core business involves managing complex public programs such as health insurance eligibility, medical disability exams for veterans, and employment services. Much of its work is in partnership with U.S. federal, state, and international governments.
Key to its recent strategy are investments in technology modernization, management of large-scale public programs, and expanding through selective acquisitions. Maximus emphasizes digital engagement, artificial intelligence (AI), automation, and cybersecurity to help government clients deliver more efficient citizen services. Its success depends on maintaining strong client relationships, adapting to changing government priorities, and managing working capital and cash flows with discipline.
Quarter in Review: Segment Performance and Key Events
The standout of the period was the U.S. Federal Services segment. Revenue in this area grew 11.4% year over year to $761.2 million. This growth came entirely from increased work on existing government programs, driven by heightened volumes in clinical-related projects. Segment operating margin reached 18.1%, a 2.6 percentage point jump from the prior year. Management attributed this leap to increased throughput—meaning more cases processed for government clients—supported by ongoing investments in automation and AI.
Meanwhile, the U.S. Services segment saw a 6.9% drop in revenue to $439.8 million, with Operating margin fell to 10.2% from 13.0% in the prior year period. This reflects the winding down of one-time Medicaid-related activities that drove unusually high volumes in 2024. Management described the margin normalization as expected, as Medicaid eligibility checks and other related contracts settled into more typical volume and profitability levels.
The “Outside the U.S.” segment experienced a revenue drop from $159.3 million to $147.4 million, stemming from prior business divestitures. Nonetheless, this segment posted an improvement in profitability, with an operating margin of 4.0%, a swing from an operating loss in the prior year. The improvement points to successful restructuring efforts that focused the company’s international portfolio on higher-performing programs.
Company-wide adjusted EBITDA margin was 14.7%. Gross profit, operating income, and net income (GAAP) all posted solid gains compared to the prior year, supporting the bottom-line outperformance. However, Free cash flow (non-GAAP) was negative $198.2 million. This shortfall was tied to payment delays on two large programs and pushed days sales outstanding (the average collection period for receivables) up to 96 days from 73. Management said that Collection activity improved after the quarter closed and reaffirmed confidence that full-year cash flow targets remain achievable.
Maximus continues to advance its technology strategy, with management highlighting recent AI-driven improvements in productivity and service delivery. The company’s Federal Services division, for example, uses robotic process automation and AI in areas such as claims processing and dispute resolution for government agencies. For clinical volume contracts—including those with the Department of Veterans Affairs—AI-powered record sorting and automation tools are allowing higher case throughput and improved efficiency.
No major acquisitions closed during the period, but management noted continued interest in “tuck-in” acquisitions—smaller deals that build on existing strengths in government services or technology consulting. Over the trailing twelve months, the book-to-bill ratio stood at 0.8x. The total sales pipeline at June 30, 2025, was $44.7 billion, with 63% representing new work opportunities.
Financial strength remains a focus, even amid short-term cash flow pressures. Maximus ended the quarter with $59.8 million in cash and $1.67 billion in total debt, resulting in a net debt to EBITDA ratio of 2.1x—within its stated target range. The quarterly dividend remained unchanged at $0.30 per share, and $65.8 million remains authorized for share repurchases.
Looking Forward: Guidance and Priorities
For the third consecutive quarter, management raised guidance for fiscal year 2025. The new outlook forecasts full-year revenue of $5.375–$5.475 billion, up by $100 million at the midpoint. Adjusted EBITDA margin is now expected to reach about 13.0%, with adjusted diluted EPS between $7.35 and $7.55, $1.00 higher at the midpoint than previous guidance. Free cash flow guidance is now expected to range between $370 million and $390 million (non-GAAP). Management emphasized that these improved forecasts assume collections will normalize, as early signs indicate, and that the outperformance in Q2 is not necessarily expected to repeat at the same level in the coming quarters.
While the forward outlook remains positive, management struck a cautious tone. It noted that the quarter's outperformance was heavily weighted toward U.S. Federal Services, with exceptional clinical contract volumes that may ease in future periods. Guidance for later quarters assumes a “step down” in volumes, as well as some risk mitigation for currently unsigned or delayed new federal contracts. The book-to-bill ratio was 0.8x on a trailing twelve-month basis, though stable, suggesting actual new contract conversion lags the breadth of the pipeline, a function of lengthier government procurement cycles.
MMS does pay a quarterly dividend, which was held steady at $0.30 per share.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
