Maximus Q3 Earnings Call Highlights

Maximus lowered its full-year earnings and cash-flow guidance after the Department of Veterans Affairs paused performance incentives on its Medical Disability Exam program. Adjusted EPS is now expected at $7.90–$8.20 and free cash flow at $425–$475 million, while revenue guidance was maintained at $5.2–$5.35 billion. Third-quarter revenue reached $1.28 billion, with adjusted EBITDA margin improving to 15.0% and adjusted EPS rising to $2.22. Cash collection also improved after quarter-end, with approximately $245 million received from a major federal customer amid elevated days sales outstanding. Management highlighted a $50.4 billion sales pipeline and potential growth from Medicaid, SNAP administration and AI-enabled government services. Maximus said AI requirements now appear in roughly 75%–80% of new bids and cited a 3.5% operating-margin improvement across five contracts using AI tools. Maximus NYSE: MMS reported fiscal 2026 third-quarter revenue of $1.28 billion, with adjusted EBITDA margin of 15.0% and adjusted diluted earnings per share of $2.22. Revenue was in line with the company’s expectations, while adjusted EBITDA margin improved from 14.7% a year earlier and adjusted EPS rose from $2.16. The company reiterated its full-year revenue outlook but reduced its earnings and free-cash-flow guidance after the Department of Veterans Affairs temporarily paused performance incentives and disincentives on its Medical Disability Exam, or VA MDE, program. VA Incentive Pause Reduces Earnings Outlook CFO David Mutryn said the VA notified all program vendors of a pause in the incentive mechanism, effective July 1, as the agency works to improve its invoice review and validation process. Maximus had recorded positive performance incentives during each of the first three quarters of fiscal 2026, reflecting results on measures including timeliness, accuracy and quality. The company removed assumed VA MDE incentive contributions from its fourth-quarter forecast. That action lowered its full-year adjusted EPS outlook by approximately $0.35 per share. Adjusted diluted EPS is now expected to be $7.90 to $8.20, compared with the prior midpoint of $8.40. Full-year adjusted EBITDA margin is expected to be about 13.7%. Free cash flow is now expected to be $425 million to $475 million. Revenue guidance was reiterated at $5.2 billion to $5.35 billion, with a bias toward the lower end of the range. For the fourth quarter, Maximus’ revised guidance implies adjusted diluted EPS of $1.91 at the midpoint and adjusted EBITDA margin of approximately 13%. Mutryn said the company views that quarterly margin level as a reasonable earnings run rate entering fiscal 2027 while the incentive suspension remains in place. The company assumes the pause will continue through Dec. 31, 2026, meaning Maximus does not expect to be eligible for incentives in the first quarter of fiscal 2027. CEO Bruce Caswell said the VA has released a draft performance work statement for the successor contract, covering all six regions currently served by the company. He said the document did not include details about pricing or future incentive structures. Caswell said the company remains confident in its ability to win the rebid, citing its delivery record, operating investments and relationship with the customer. The current contracts are scheduled to end Dec. 31, though the company said an extension of up to six months could be possible based on the timing suggested in the draft work statement. Segment Results and Cash Collection Progress U.S. Federal Services generated third-quarter revenue of $721 million. Revenue declined from the prior-year period, which included higher natural-disast.