Greetings, and welcome to the Fiscal 2025 Fourth Quarter and Year End Earnings Conference Call. At this time, participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, James Francis, Vice President of Investor Relations. Good morning and thanks for joining us.

With me today is Bruce Caswell, President and CEO, David Mutryn, CFO, and Jessica Batt, Vice President of Investor Relations. I'd like to remind everyone that a number of statements being made today will be forward-looking in nature. Please remember that such statements are only predictions. Actual events and results may differ materially as a result of risks we face, including those discussed in Item 1A of our most recent Forms 10-Q and 10-Ks. I encourage you to review the information contained in our recent filings with the SEC and our earnings press release. The company does not assume any obligation to revise or update these forward-looking statements to reflect subsequent events or circumstances except as required by law. Today's presentation also contains non-GAAP financial information. For a reconciliation of the non-GAAP measures presented, please see the company's most recent Forms 10-Q and 10-Ks. And with that, I'll hand the call over to Bruce.

Thanks, James, and good morning. I'll begin by recapping fiscal year 2025, which was notable not only for the financial results but for our team's ability to remain focused on serving our customers amidst a period of significant change in the government services sector. I'll then cover our priorities for fiscal year 2026, aligned with our strategic vision and current and anticipated future market conditions, including investments that are designed to prepare Maximus, Inc. for what we believe are meaningful growth and market expansion opportunities. Investments in AI capabilities are an important priority and reflect our evolution as a technology-driven partner to governments. Fiscal year 2025 was a year of significant achievement for Maximus, marked by success across multiple domains. We entered the year with strong visibility into the underlying portfolio of the business both in terms of revenue and backlog and certain programs returning to more steady-state levels following post-pandemic upticks. We guided with prudent judgment given the changing political environment. In what emerged as a markedly different approach by the current administration, following the transition, we carefully navigated an uncertain environment that brought new priorities and opportunities that developed as the year progressed. Looking back at where we started, I'm pleased to report that revenue and profitability came in higher than projected, reflecting both the strength of our core operations and the disciplined execution of our strategy throughout the year. The organic growth rate of the consolidated business was 3.9%, with 12.1% organic growth and the Outside The U.S. Segment delivering 4.1% organic growth. This outcome is attributable to the dedication of our teams across the enterprise in delivering on customer priorities. Equally important, our contractual relationships remained stable and secure throughout the year, with cancellations or impacts at just 1.5% of fiscal year 2025 revenue, a figure…

Collectively, we believe these actions suggest an evolution in contracting that will accommodate newer entrants like Maximus and support longer-term defense national security policy objectives. In further support of this strategy, we've formed and are investing in our first Cooperative Research and Development Agreement or CRADA, providing a mechanism for developing, maturing, and retaining Maximus intellectual property through collaboration with the Department of War. This agreement supports hosting of recurring hackathon events, capability demonstrations, and technology experiments in a Maximus operated sensitive compartmented information facility, or SCIF. This CRADA positions Maximus closer to the men and women in uniform that conduct global operations for the department and positions Maximus at the center of advanced research and development. These activities align directly with the department's evolving acquisition strategies for rapid prototyping, IT, and modernization. Recent commentary from department leadership has signaled the desire for greater investment by the industry. While this may present challenges for some competitors, Maximus is actively demonstrating on contract innovation as part of our technology forward strategy. More than four months on, the landscape around the One Big Beautiful Bill Act remains largely unchanged, but the priorities it established continue to be front and center for our state customers within our U.S. Services segment. The legislation creates meaningful opportunities for Maximus in both Medicaid and SNAP. And we remain actively engaged with clients to prepare for the requirements ahead. On Medicaid, administration continues its focus on managing federal spend, with new rules requiring twice-yearly eligibility determinations for the expansion population and codifying work requirements beginning in early 2027. States must review and adjust their processes to comply, and our U.S. Services team is working closely with clients to ensure readiness. As we noted previously, we believe Maximus is well-positioned as a conflict-free partner to support these compliance…

I'd like to recap our strong fiscal year 2025 with a few financial highlights and then walk through results in our typical fashion. I'll close with formal fiscal year 2026 guidance and commentary. First, I'm proud of the team's strong execution to enable finishing fiscal year 2025 right on the mark for revenue, which totaled $5.43 billion. This equates to organic growth of 3.9% over the prior year. From an earnings standpoint, the full-year adjusted EBITDA margin was 12.9% and adjusted earnings per share were $7.36. The fourth quarter included a higher level of severance charges related to ongoing cost management efforts. Second, the fourth quarter was also notable for its strong cash flows as we anticipated, enabling us to deliver $366 million of free cash flow for the full fiscal year 2025. Third, from a capital allocation standpoint, we stayed focused on debt pay down and opportunistic share repurchases. At September 30, our net leverage was 1.5 times. Looking back across the full fiscal year, we repurchased approximately $457 million worth of shares, including $151 million in the fourth quarter. Finally, our official guidance for 2026 aligns with the early color we provided in August. The midpoint of $5.325 billion of revenue reflects our current view of volume dynamics on some of our variable work that I will discuss in more detail. Meanwhile, the $8.1 midpoint of adjusted EPS guidance reflects ongoing margin expansion and 10% growth over fiscal 2025. Continued adoption of technology and careful cost management are key enablers on the bottom line outlook. While the recent share repurchase activity further benefited diluted EPS by lowering the weighted average shares outstanding. Last, the midpoint of our free cash flow guidance is $475 million, representing about 30% year-over-year growth. Those are the key highlights, so let's turn to…

Thank you. We'll now be conducting a question and answer session. Our questions are coming from Charlie Strauzer with CJS Securities. Please proceed with your questions.

Hi, this is Will on for Charlie. Congrats on the strong quarter.

Thanks, Will. Good morning.

Morning. Looking at the guidance, the EBITDA margin is for 26% a lot stronger than we expected. Can you give some more color on what's driving that expansion even with the expectation for flat revenue? Is it related to mix shift or all productivity and efficiency initiatives? Thank you.

David is going to start out with that and I may add some color commentary. Thanks.

Yes, if you look at the margin guidance we laid out for each of the segments, all three are actually slightly higher than where they finished fiscal year 2025. For U.S. Services, it's worth pointing out, as I did in the prepared remarks, that the portion of severance that they incurred in the fourth quarter hurt their margin in that quarter and the related savings are supporting the guide for 2026 there. I think the theme across all three segments really is the continued deployment of technology and automation as well as cost management. And on the cost management front, you may notice on the P&L total company SG&A, if you consider that there was $40 million of divestiture charges in the first year in 2025, the rest of SG&A is essentially flat from 2024 to 2025 despite the revenue growth. So we're very focused on continuing to stay competitive on the cost side. And then maybe one other detail I'll point out that related to the EBITDA and also the cash flow for that matter is that a number of capitalized software projects that have been driving CapEx the past couple of years are now operational and therefore amortizing. So you can see in our in the various FY 2026 guidance metrics a higher forecast for D&A and a lower forecast for CapEx.

That is super helpful. Thank you. And then looking at the revenue guidance, can you add any more color detail around growth by segment?

Sure. Yes. Without maybe going all the way to specific guidance by segment, I'll point out that both U.S. Federal and U.S. Services may see mild contraction. We expect a little bit more erosion on the U.S. Federal side given their overperformance in 2025. And what I had called out on the call specifically was clinical work and disaster response work for context there. The clinical work is in both U.S. Federal and U.S. Services. And the disaster response is on the federal side.

So federal has a little bit more of what we called out as headwinds, but also the strongest pipeline in the near term as well. So those are kind of the commentary between the segments.

Thank you. And then switching gears a little bit. How are you thinking about the effects of the government shutdown on your results both in Q1 and the full year?

Sure. It's Bruce. I'll take that. We really don't anticipate any negative impacts on our delivery on our contract portfolio in Q1 FY 2026. Nearly all of our programs were deemed essential services by the government. And in some cases, some of those programs had received sufficient funding prior to the shutdown through other legislative vehicles like the IRA, for example. And my top comment there would be that this really reflects the very deliberate strategy of the company over the years to develop a very durable contract portfolio that fares well in these types of situations. So to put a little more color on it, I believe that across our base of nearly 40,000 employees, we were very fortunate to have fewer than a dozen that were impacted by funding curtailments in the portfolio. And we, of course, kept those staff on salary and employed and gave them an opportunity to do some refresher training and some upskilling training and so forth during that period. Of course, now certain departments and agencies could be impacted going forward because the CR presently only extends funding for those through January 30. So like others in our sector, we're going to continue to monitor that. But prior shutdowns, including the most recent one, are any indication, we all remain optimistic that any impact for us would be minimal. I did want to note that the Department of Veterans Affairs and the USDA, which includes SNAP funding, both have full-year funding in place already. Therefore, they'd be unaffected by any potential further shutdown, potentially in January. So it's also our understanding as we come into this that funding for essential entitlement programs like Medicaid would continue for an additional thirty days after January 30. So should any subsequent partial government shutdown come to pass? So David, anything you'd add further to that?

Yes, just on the a little commentary on the cash flow front. As I mentioned in the prepared remarks, we've seen some payment delays from a portion of our federal customers. So I'll point out, also we have we've had several federal customers continue to pay us through the month of October. So the month of October was really in fairly good shape considering that the government was shut down the whole month. But nonetheless, we do expect currently that December 31 will have an elevated DSO.

Hope that helps. Further questions, Will?

That helps. And then along those lines, you guys collected a lot of receivables in Q4 and leverage is down to 1.5 turns. So what are your priorities for allocating that capital in the short term? And you briefly talked about M&A. Could you add some color on the type of things that you're looking for?

Sure. Happy to do that. Fundamentally, well, our criteria that we apply remain the same as they've been for some time, meaning that we'll be disciplined in deploying capital to combine with high-quality companies that can create new growth platforms for Maximus. That's the fundamental. We've been fairly explicit with our investors in the marketplace noting that our priority in the near term is growth in the U.S. Federal market. And within that, we do have a bias toward the defense and national security space. Our research suggests that the CAGR in that area over the next several years is north of about 9%. We also believe from our research that the overall services marketplace and software spend in the defense community is well in excess of $150 billion and we believe the addressable component for Maximus to be nearly $50 billion. So an excellent market and one that's growing and one candidly that we've now established, our ability to win in on an organic basis. So if we think about how we would further accelerate our growth potential as a business, there are three categories, if you will, that we've been considering. The first is access to customer relationships, because qualified past performance is just so important in this market to win in this market. And in some cases, there would be contract vehicles that we could potentially gain access to through a combination with another company. The second category is technical capabilities to augment what we are already bringing to bear in the marketplace through the mission threads and the accelerator work that I mentioned in my prepared remarks. And the third is business systems capabilities. While some of those can be and certifications, if you will, while some of those can be achieved organically like the CMMC level two certification that we've mentioned, others like having a certified purchasing procurement system, the faster path to those is sometimes through a combination or an acquisition. So from that perspective, in terms of criteria, that's what we'd be focusing on in terms of priorities. But I'll let David add to that in terms of any other metrics or criteria he'd like to share.

Sure. Maybe I'll just add, we certainly consider other uses of capital, including repurchases, which as you've seen, we've done a fair amount over the past year, especially in this environment. But I do want to emphasize that our primary reason for M&A is to unlock organic growth potential, which we believe can deliver significant value over the longer term. So that's really what we look for is revenue synergies and organic growth acceleration.

That is helpful. Thank you. I think just one more for me. Thanks for the update on the opportunities related to Big Beautiful Bill. What phase of the opportunity would you say we are in right now and what are you actively working on with states? And then can you provide any detail on the timing of RFPs coming out from the states?

Sure. I'm happy to do that. So as I mentioned in the prepared remarks, there's been no real update from a policy perspective and not surprisingly, no regulatory updates either. Our understanding is that if we're going to see implementing regulations, for example, related to work requirements, those wouldn't be coming out until this summer. States are working with imperfect information, but in our view, they're in a situation where they can plan out an awful lot of what it's going to take to be compliant with these requirements, think about the impacts on their business process and on their state systems and how they're going to go about engaging the beneficiaries. And of course, for Medicaid, are the beneficiaries in the expansion population. That's estimated to be about 21 million people on a national basis. So there's a lot of pre-planning that can be done. And in fact, there have been articles out there saying from notable consultants saying if states started planning, they're already behind. The update for this quarter, based on our engagement in the marketplace, and it makes sense when we think about the timeline, is that SNAP is being taken very seriously. And why is that? The SNAP payment error rate issue as it's addressed in the bill can lead to a significant financial lift for states who don't bring their error rates down below 6%. The federal payments related to SNAP will be affected in federal fiscal year 2028. So beginning in October 2027, those payments could be affecting. Those payments payment impacts can take two forms. The first is on the benefit component of the SNAP funding and the second is on the federal administrative component, which would drop from 50% to 25%. The assessment of the error rates that will affect that…

There you go. Thank you very much.

Okay. Thanks, Will. Operator, back to you. Thank you so much, everyone. This does conclude today's question and answer session. And with that, we will bring the call to a close. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.