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, 2026, and March 31, 2025.

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 its associated 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. We allocate corporate costs 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, 2026, 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 expense for the six months ended March 31, 2025, includes divestiture-related charges of $39.3 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 and six months ended March 31, 2026, as compared to the same periods 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 $380.4 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 their remaining useful life of approximately 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 and six months ended March 31, 2026, was 22.5% and 24.0%, respectively, compared to 27.1% and 31.6% for the three and six months ended March 31, 2025, respectively. Our effective tax rate for the first half of fiscal year 2026 includes approximately $4.2 million of benefit from research and development tax credits identified and claimed in the period. 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% and 25%.

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 and cost of revenue for the three months ended March 31, 2026 and 2025 decreased 3.2% and 8.4%, respectively. Our revenue and cost of revenue for the six months ended March 31, 2026 and 2025 decreased 1.2% and 7.1%, respectively.

Our prior year revenue included the benefit of short-term disaster recovery work, which did not recur in fiscal year 2026. Absent this work, revenue would have grown approximately 1.5% for the three months ended March 31, 2026 compared to March 31, 2025, and 3.0% for the six months ended March 31, 2026 compared to six months ended March 31, 2025, principally driven by volume growth. Our margins have improved through a combination of efficiency savings through the use of technology and the absence of short-term disaster recovery work, which operated at lower margins than the core of our business.

Below is a reconciliation of revenue for the three and six months ended March 31, 2026 compared to the prior year period, including the impact of short‑term disaster recovery work and our organic revenue growth excluding this work.

We anticipate operating margin for the U.S. Federal Services Segment in fiscal year 2026 to be approximately 17.5%.

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 March 31, 2026 and 2025, decreased 6.0% and 4.6%, respectively. For the six months ended March 31, 2026 and 2025, our revenue and cost of revenue decreased 7.1% and 6.1%, respectively.

Our U.S. Services Segment continues to experience 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. Accordingly, we anticipate that we will return to organic growth towards the end of the current fiscal year.

During the second quarter of the year, we recorded an impairment charge of $6.9 million related to a capitalized software asset following a client decision which resulted in its carrying value no longer being recoverable. We anticipate operating margins for the U.S. Services Segment in fiscal year 2026 to be approximately 10%.

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, with the aim of driving growth and margin improvement in this segment. For fiscal year 2026, we anticipate a breakeven operating margin.