10-Q: Maximus Q2 2026 Earnings: Revenue Dip, Profitability Holds Steady

Maximus, Inc. reported a 4.1% decrease in revenue for the second quarter of fiscal year 2026, but maintained strong profitability and operating margins.

Summary

• Maximus, Inc. reported revenue of $1,305,967,000 for the three months ended March 31, 2026, a decrease of 4.1% compared to $1,361,786,000 in the prior year period.
• For the six months ended March 31, 2026, revenue was $2,651,013,000, down 4.1% from $2,764,461,000 in the same period last year.
• Net income for the three months ended March 31, 2026, was $98,063,000, an increase from $96,569,000 in the prior year period.
• Diluted earnings per share for the three months ended March 31, 2026, were $1.80, up from $1.69 in the prior year period.
• The U.S. Federal Services segment saw a 3.2% revenue decrease for the quarter, but improved operating margins due to efficiency gains and the absence of lower-margin disaster recovery work.
• The U.S. Services segment experienced a 6.0% revenue decrease for the quarter, with anticipated return to organic growth by the end of the fiscal year.
• The Outside the U.S. segment reported a 3.1% revenue decrease for the quarter, with an anticipated breakeven operating margin for fiscal year 2026.
• The company reported net cash used in operating activities of $54,876,000 for the six months ended March 31, 2026, compared to $37,282,000 in the prior year period, attributed to administrative delays in payments from a large federal contract.
• Days Sales Outstanding (DSO) increased to 78 days at March 31, 2026, from 73 days at September 30, 2025, excluding the effects of the Receivables Purchase Agreement.
• The company repurchased $142.0 million of its common stock during the six months ended March 31, 2026.

Sentiment

Score: 6

Explanation: StockSavvy.ai views this as a neutral to slightly positive filing. While revenue declined, the company demonstrated strong cost control, leading to improved profitability metrics and EPS. The outlook suggests stabilization and potential for future growth, though the increase in operating cash burn and DSO warrants monitoring.

Positives

• Net income increased to $98,063,000 for the three months ended March 31, 2026, from $96,569,000 in the prior year period.
• Diluted earnings per share increased to $1.80 for the three months ended March 31, 2026, from $1.69 in the prior year period.
• Gross profit percentage improved to 26.2% for the three months ended March 31, 2026, from 24.9% in the prior year period.
• Operating margin percentage improved to 11.4% for the three months ended March 31, 2026, from 11.2% in the prior year period.
• U.S. Federal Services segment margins improved due to efficiency savings and the absence of lower-margin disaster recovery work.
• The company expects an overall effective tax rate between 24% and 25% for fiscal year 2026, a decrease from prior periods.
• The company is in compliance with all covenants under its credit agreement.
• The company has approximately $140.2 million remaining for future stock repurchases as of March 31, 2026.

Negatives

• Revenue decreased by 4.1% for both the three-month and six-month periods ended March 31, 2026, compared to the prior year.
• U.S. Services segment revenue decreased by 6.0% for the three months and 7.1% for the six months ended March 31, 2026.
• Outside the U.S. segment revenue decreased by 3.1% for the three months and 10.0% for the six months ended March 31, 2026.
• Net cash used in operating activities increased to $54,876,000 for the six months ended March 31, 2026, from $37,282,000 in the prior year period.
• Days Sales Outstanding (DSO) increased to 78 days at March 31, 2026, from 73 days at September 30, 2025 (excluding RPA).
• An impairment charge of $6.9 million was recorded for a capitalized software asset in the U.S. Services Segment.
• The company divested its child support business in the U.S. Services Segment in December 2025, which had approximately $25.0 million in annual revenue.

Risks

• Failure to meet performance requirements under contracts could lead to penalties, liquidated damages, actual damages, adverse settlement agreements, and/or contract termination.
• Competition and the ability to accurately price contracts to generate desired profit.
• Effects of future legislative or government budgetary and spending changes, including the impact of a prolonged U.S. government shutdown.
• The impact of U.S. government decisions on federal procurement, federal funding to states' safety-net programs, and overall decision-making processes.
• The ability of the U.S. government to issue or revise rules, regulations, executive orders, and directives, creating uncertainty and requiring significant compliance efforts.
• Difficulties in integrating or achieving projected revenues, earnings, and other benefits from acquired businesses.
• The outcome of reviews or audits, which might result in financial penalties and impair the ability to respond to invitations for new work.
• The ability to manage capital investments and other contract startup costs.
• The ability to manage debt.
• The ability to maintain technology systems and protect confidential or protected information.
• Discovery of additional information related to the previously disclosed cybersecurity incident and potential legal, business, reputational, or financial consequences.
• The ability to attract and retain executive officers, senior managers, and other qualified personnel.
• The effect of union activity and organizing efforts at U.S. locations.
• Government customers may not exercise options or may recompete or terminate contracts on short notice.
• The ability to win recompetes and succeed in protests on significant contracts.
• Reliance on a small number of individual contracts and customers.
• The ability to realize the full value of the backlog.
• The ability to maintain relationships with key government entities.
• Failure to comply with laws governing the business, which might result in fines, penalties, suspension, debarment, and other sanctions.
• The costs and outcome of litigation.
• The ability to manage third parties upon whom the company depends.
• Changes in laws and regulations governing the business, including non-routine government actions, changes in tax laws, and accounting policies.
• The effects of emerging technologies, such as artificial intelligence (AI) and machine learning (ML), on the business.
• Matters related to businesses that have been disposed of or divested.
• The MOVEit cybersecurity incident litigation, with approximately half of the claims asserted against the company remaining and proceeding to discovery.

Future Outlook

The company anticipates that its cash flows will improve in the second half of fiscal year 2026. For fiscal year 2026, the company expects an overall effective tax rate between 24% and 25%. The U.S. Federal Services Segment is anticipated to have an operating margin of approximately 17.5% for fiscal year 2026. The U.S. Services Segment anticipates returning to organic growth towards the end of the current fiscal year and expects operating margins of approximately 10% for fiscal year 2026. The Outside the U.S. Segment anticipates a breakeven operating margin for fiscal year 2026.

Management Comments

• Maximus helps improve the delivery of public services for more than 100 million American citizens, as well as citizens in the United Kingdom (U.K.), Canada, and the Middle East, amid complex technological, health, economic, and social challenges.
• As a trusted and accountable partner to primarily U.S. federal and state customers, we proudly design, develop, and deliver innovative and efficient programs that are designed to improve governments effectiveness in serving its citizens.
• We create value for our customers through our ability to translate public policy into operating models that achieve outcomes for governments at scale.
• Our work covers a broad array of services, including the operation of large health insurance eligibility and enrollment programs; clinical services, including assessments, appeals, and independent medical reviews; and technology services.
• These services benefit from an industry with increasing demand, constrained government budgets, and an increased focus on technology as governments prioritize modernization.
• We also demonstrate the ability to move quickly, ranging from digitally enabled contact center support services for natural disaster response to swift establishments of public health and safety initiatives.

Industry Context

StockSavvy.ai notes that Maximus operates in the government services sector, a market characterized by long-term contracts, regulatory oversight, and a growing demand for tech-enabled solutions to improve public service delivery. The company's focus on health and human services programs, particularly within U.S. federal and state agencies, positions it to benefit from ongoing government initiatives in these areas. However, the sector is also subject to budget constraints and shifts in government policy, which can impact revenue and contract awards.

Comparison to Industry Standards

• The company's gross profit margin of 26.2% for the quarter is a key indicator of its operational efficiency in delivering services. Industry benchmarks for government contracting services can vary significantly based on the specific services offered, but generally, margins in this sector are considered moderate due to the nature of fixed-price or cost-plus contracts and competitive bidding processes.
• Maximus's operating margin of 11.4% for the quarter reflects its ability to manage overhead and administrative costs relative to its revenue. Companies in similar government contracting spaces often aim for operating margins in the mid-to-high single digits, with some specialized technology or consulting firms achieving higher.
• The increase in Days Sales Outstanding (DSO) to 78 days (excluding RPA) from 73 days (September 30, 2025) suggests a potential lengthening of the payment cycle from government clients, which is a common challenge in the industry. Efficient working capital management is crucial for companies heavily reliant on government payments.
• The company's effective tax rate of 22.5% for the quarter is within a typical range for U.S. corporations, though specific tax credits and international operations can cause variations. Competitors operating in similar jurisdictions would face comparable tax environments.

Legal Proceedings

• The company is subject to audits, investigations, and reviews related to compliance with laws and regulations governing its role as a government contractor. Adverse findings could lead to criminal, civil, or administrative proceedings, with potential penalties, fines, suspension, or debarment.
• The company is involved in various claims, arbitrations, and lawsuits arising in the normal course of business, including bid protests, employment matters, contractual disputes, and charges before administrative agencies.
• The MOVEit cybersecurity incident litigation involves a purported nationwide class action alleging negligence resulted in the compromise of personally identifiable information and protected health information. Thirteen similar cases have been filed, centralized in a Multidistrict Litigation (MDL). The court has granted in part defendants' motion to dismiss claims for four plaintiffs, and the company is proceeding to discovery on the remaining claims asserted against it. An individual action in Florida state court remains stayed pending developments in the MDL.
• The company has accrued an amount within a range of possible outcomes expected to be incurred to resolve the remaining MOVEit litigation matters.

Stakeholder Impact

• Shareholders: The slight increase in EPS and dividends declared ($0.33 per share for the upcoming quarter) are positive for shareholders. However, the revenue decline and increased cash burn from operations may be a concern.
• Employees: The company continues to grant stock options and RSUs, indicating a focus on employee retention and incentivization. The ability to attract and retain qualified personnel is noted as a risk factor.
• Government Customers: The company's core business relies on government contracts. Any adverse findings from audits or legal proceedings could impact its ability to secure future contracts.
• Suppliers and Creditors: The company's financial health, as indicated by its credit agreement compliance and liquidity, is important for its suppliers and creditors. The increase in debt and the need to manage cash flow are relevant factors.

Next Steps

• The company anticipates cash flows will improve in the second half of fiscal year 2026.
• The final purchase price calculation for the divested child support business is expected to be concluded during the third fiscal quarter of the current year.
• The company will continue to explore opportunities to remit funds from foreign locations, considering working capital requirements and relevant tax rules.
• The company will continue to monitor capitalized software assets for recoverability.
• The company is tracking a number of opportunities to drive growth and margin improvement in the Outside the U.S. Segment.
• The company will continue to explore opportunities to remit additional funds from foreign locations, taking into consideration the working capital requirements and relevant tax rules in each jurisdiction.

Key Dates

Recommendation

Maximus demonstrates resilience with stable profitability despite revenue headwinds, driven by effective cost management and operational efficiencies, particularly in its U.S. Federal Services segment. The company's strong balance sheet, compliance with debt covenants, and commitment to shareholder returns via dividends and share repurchases are positive. However, the increasing cash burn from operations, rising DSO, and ongoing legal proceedings, particularly the MOVEit cybersecurity litigation, introduce notable risks. The anticipated return to growth in the U.S. Services segment and the strategic focus on international expansion provide potential upside. Given the mixed signals of operational strength against financial and legal uncertainties, a 'hold' recommendation is appropriate for seasoned investors and institutions, suggesting a wait-and-see approach to monitor the resolution of operational cash flow issues and legal matters before considering a more aggressive stance.

Keywords

Maximus, SEC Filing, 10-Q, Quarterly Report, Government Services, Tech-Enabled Services, Revenue, Net Income, Earnings Per Share, U.S. Federal Services, U.S. Services, International Services, Financial Results, Corporate Governance, Risk Factors, Cybersecurity Incident