MAXIMUS, INC.

Results of Operations

The following table sets forth items from our consolidated statements of operations for the three and six months ended March 31, 2025, and March 31, 2024.

Our business segments have different factors driving revenue fluctuations and profitability. The sections that follow cover these segments in greater detail. Our revenue reflects fees earned for services provided. Cost of revenue consists of direct costs related to labor and related overhead, subcontractor labor, outside vendors, rent, and other direct costs. The largest component of cost of revenue, approximately two-thirds, is labor, including subcontracted labor.

Selling, general, and administrative ("SG&A") expenses

Selling, general, and administrative expenses ("SG&A") consist of indirect costs related to general management, marketing, and administration. It is primarily composed of labor costs. These costs may be incurred at a segment level, for dedicated resources that are not client-facing, or at a corporate level. Corporate costs are allocated to segments on a consistent and rational basis. Fluctuations in our SG&A are primarily driven by changes in our administrative cost base, which are not directly driven by changes in our revenue. As part of our work for the U.S. federal government and many states, we allocate these costs using a methodology driven by the U.S. Federal Cost Accounting Standards.

Our SG&A expense for the six months ended March 31, 2025, includes $39.3 million of divestiture-related charges from our sale of businesses in the Outside the U.S. Segment. These charges included accumulated foreign currency losses incurred over two decades of operations, as well as indemnifications provided to the buyer.

Amortization of intangible assets

Amortization of intangible assets remained consistent for the three and six months ended March 31, 2025 as compared to the same periods in fiscal year 2024.

Our balance sheet includes $438.9 million of intangible assets from a 2021 acquisition. These assets, comprised of customer relationships, technology, and a medical provider network, continue to support medical disability examinations (MDE) contracts with the VA. The greater part of these assets are being amortized over the remaining eight years. In the event that our expectations change with respect to these acquired contracts, the value of these assets and the estimated remaining lives of these assets may need to be adjusted.

Interest Expense

Our interest expense has declined in fiscal year 2025 compared to fiscal year 2024 as a result of a reduction in year-over-year interest rates. Following the amendment of our debt agreement, we continue to mitigate our risk by fixing interest rates on approximately half of our debt.

Provision for Income Taxes

Our effective income tax rate for the three and six months ended March 31, 2025, was 27.1% and 31.6%, respectively, compared to 25.4% and 25.2% for the three and six months ended March 31, 2024, respectively. The year-to-date rate increase is a result of the disposition of our businesses in Australia and Korea, which negatively impacted the effective tax rate. For fiscal year 2025, we expect an overall effective tax rate between 28.0% and 29.0%, inclusive of the divestiture and other non-recurring items which negatively impact our full year rate.

U.S. Federal Services Segment

Our U.S. Federal Services Segment delivers solutions that help various U.S. federal government agencies better deliver on their mission, including program operations and management, clinical services, and technology solutions. The segment also includes system and application development, IT modernization, and maintenance services. Clinical services comprises appeals and assessments services, which includes managing the evaluation process for U.S. veterans and service members on behalf of the VA and certain state-based assessments and appeals work that is part of the segment's heritage. Under TCS, the segment executes on its digital strategy to deliver technology solutions that advance agency missions, including the challenge to modernize, provide better customer experience, and drive process efficiencies.

Our revenue and cost of revenue for the three months ended March 31, 2025 and 2024, increased 10.9% and 7.0%, respectively. For the six months ended March 31, 2025 and 2024, our revenue and cost of revenue increased 13.0% and 11.8%, respectively.

Our revenue growth continues to be driven by clinical programs, including medical assessments, as well as broad growth across our portfolio of contracts. Our medical assessment revenue in the first two quarters of fiscal year 2025 benefited from increased volumes and performance improvements, which reduced the volume of penalties incurred. These volume increases include those driven by the Honoring our PACT Act, which had necessitated a contract rebid to expand the scale of these arrangements, as well as additional volume to keep up with assessment demand. These additional volumes also enhanced our profit margins. Our second quarter of fiscal year 2025 also benefited from support provided to the Federal Emergency Management Agency (FEMA). These contracts provide short-term assistance for natural disasters, and are expected to conclude during the third fiscal quarter of 2025.

At this time, we are not anticipating our workload of volume-based contracts to maintain its current level and, accordingly, we anticipate a full-year operating margin between 12.5% and 13.0% for fiscal year 2025. The significance of volume-based assessment work in this segment, and the potential opportunities for fluctuations in volumes, make this segment's margin more challenging to estimate.

U.S. Services Segment

Our U.S. Services Segment provides a variety of services, such as program operations, clinical services, employment services and technology solutions and related consulting work for U.S. state and local government programs. These services support a variety of programs, including the programs under the Affordable Care Act (ACA), Medicaid, the Children's Health Insurance Program (CHIP), Temporary Assistance to Needy Families (TANF), and child support programs. Program operations include comprehensive program administration services for government clients. The services we provide vary from program to program and include: centralized multilingual customer contact centers and multichannel, digital self-service options to better serve citizens' needs; application assistance to beneficiaries to help them access benefits; person centered clinical assessment services; provider enrollment systems and related business process services; employment services including eligibility support, case management, job-readiness preparation, job search and employer outreach, job retention and career advancement, and selected educational and training services. Our consulting services include technical and financial consulting services, including Independent Verification and Validation (IV&V) services, program modernization consulting; and project management.

Our revenue and cost of revenue for the three months ended March 31, 2025 and 2024, decreased 9.0% and 7.1%, respectively. For the six months ended March 31, 2025 and 2024, our revenue and cost of revenue decreased 8.3% and 5.5%, respectively.

As noted at the time, our business in the first half of fiscal year 2024 was experiencing higher volumes from the resumption of Medicaid redetermination activities, driving benefits in both revenue and margins. Our business had returned to normal activity levels by the fourth quarter of fiscal year 2024.

We anticipate a full-year operating margin of approximately 11% for this segment in fiscal year 2025.

Outside the U.S. Segment

Our Outside the U.S. Segment provides BPS and technology solutions for international governments. These services include health and disability assessments, program administration for employment services, wellbeing solutions and other job seeker-related services, digitally-enabled customer services, and advanced technologies for modernization. We support programs and deliver services in various locations, including the United Kingdom, where we serve the newly awarded Functional Assessment Services (FAS) contract, which replaced the Health Assessment Advisory Service (HAAS) contract, and the Restart employment program. In recent years, we have divested components of the segment including, in the first quarter of fiscal year 2025, our businesses in Australia and Korea.

This segment has moved from breakeven to profitability between fiscal years 2024 and 2025.

We divested a number of employment services businesses over the past two years. The most significant divestiture impacting the results above is the sale of our operations in Australia and Korea in the first quarter of fiscal year 2025, which has reduced revenue and costs but provided a benefit to margin.

Organic growth was derived from our UK contracts, notably the FAS contract, as well as efficiency savings across the segment.

We anticipate the full-year operating margin will range between 3% and 5% for this segment in fiscal year 2025.