MAXIMUS, INC.

Results of Operations

The following table sets forth items from our consolidated statements of operations for the three months ended December 31, 2025, and December 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 expenses

Selling, general, and administrative (SG&A) expenses 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 three months ended December 31, 2025, includes $9.0 million of divestiture-related gain from the sale of our child support business within the United States, which we divested in December 2025. Our SG&A for the three months ended December 31, 2024, includes divestiture-related charges of $38.3 million 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 has declined for the three months ended December 31, 2025, as compared to the same period in fiscal year 2025, since the amortization of technology-based assets acquired in fiscal year 2021 was completed prior to fiscal year 2026.

Our balance sheet includes $393.7 million of intangible assets from a 2021 acquisition. These assets, comprised of customer relationships and a medical provider network, continue to support medical disability examinations (MDE) contracts with the U.S. Department of Veterans Affairs. These assets are being amortized over the remaining seven 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

During fiscal year 2025, we expanded our Term Loan A Credit Facility, which has resulted in an increase to our interest expense in the current year. We continue to mitigate a portion of our interest rate risk through hedging transactions on a portion of our outstanding debt.

Provision for Income Taxes

Our effective income tax rate for the three months ended December 31, 2025, was 25.6%. Our tax rate in fiscal year 2025 was affected by the disposal of our businesses in Australia and Korea and other non recurring items. For fiscal year 2026, we expect an overall effective tax rate between 24.5% and 25.5%.

U.S. Federal Services Segment

Our U.S. Federal Services Segment delivers solutions that help various U.S. federal government agencies better execute on their mission, including program operations and management, clinical services, and advanced technology solutions.

Our revenue for the three months ended December 31, 2025 increased 0.8% compared to the three months ended December 31, 2024. Our cost of revenue for the three months ended December 31, 2025 decreased 5.9% compared to the three months ended December 31, 2024.

This segment continued to receive the benefit of strong volumes and margins in our clinical assessments business. Our results in the first quarter of fiscal year 2025 also included unexpected volume growth on core programs, along with high levels of natural disaster support which did not recur in the first quarter of fiscal year 2026.

Our margin improvement stemmed from stability of volumes across multiple programs, combined with the wider adoption of technology initiatives that enhanced staff productivity. Assisted by these, we anticipate operating margins for the U.S. Federal Services Segment in fiscal year 2026 to range between 16.5% and 17%.

U.S. Services Segment

Our U.S. Services Segment provides a variety of services, such as program operations, clinical services, employment services and advanced technology solutions and related professional services work for U.S. state and local government programs. These services support a variety of programs, including the programs under Medicaid and Children's Health Insurance Program (CHIP), the Affordable Care Act (ACA) marketplaces, and Temporary Assistance to Needy Families (TANF).

Our revenue and cost of revenue for the three months ended December 31, 2025 and 2024, decreased 8.2% and 7.4%, respectively.

Our U.S. Services Segment continues to show lower volumes and demand across a broad range of contracts compared to prior years. We believe the contracts and relationships held by this segment provide it with strong opportunities to assist state customers who will require higher engagement across their federally-funded social programs.

Consistent with fiscal year 2025, our profit margins have been tempered in the first quarter. This has been caused by a need to have more resources available in the open enrollment period. We anticipate operating margins for the U.S. Services Segment in fiscal year 2026 to range between 10.5% and 11%.

Outside the U.S. Segment

Our Outside the U.S. Segment provides business process services and other 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 the U.K., including the Functional Assessment Services (FAS) contract and the Restart employment program. We also provide services in Canada and the Middle East.

The organic decline in this segment relates to lower volumes on a number of our contracts.

The divestiture of our businesses in Australia and Korea occurred in December 2024.

The effects of the organic decline and the divestiture were partially offset by the strengthening of the British Pound against the U.S. Dollar.

Following the divestitures in both fiscal years 2024 and 2025, we have taken the opportunity to expand our business development initiatives. We are tracking a number of opportunities, but many have been delayed. We anticipate operating margins for the Outside the U.S. Segment in fiscal year 2026 to range between 1% to 3%, but remain confident that the leaner segment will drive margin improvement in future years.