Government's Back Office

The company in one look

Maximus runs the administrative machinery behind government benefit programs. It answers the Medicare help line, verifies Medicaid eligibility for states, examines veterans' disability claims, and operates welfare-to-work programs — work that generated $5.43 billion of revenue in fiscal 2025 [1], essentially all of it from government customers [2]. The stock has fallen from roughly $99 in January 2026 to $58, and now trades at about 7 times guided earnings and a 12% free-cash-flow yield. This report tests whether that cash flow is durable.

Sources: FY2025 Form 10-K — revenue [3], Adjusted EBITDA margin [4], free cash flow [5]; FCF yield derived on a $3.06B market capitalization (52.5M shares at $58.30).

What Maximus does

Maximus was founded in Virginia in 1975 and describes itself as a provider of tech-enabled services to government, touching more than 100 million American citizens plus programs in the U.K., Canada, and the Middle East [6]. Its role is narrow and specific: it translates public policy into operating models — call centers, eligibility systems, clinical assessment networks — that deliver a government program at scale, for a fee. It does not set policy or fund the benefits; it runs the delivery.

The business reports in three segments. U.S. Federal Services, the largest and most profitable, runs federal contact centers and clinical-assessment work, including the Veterans Evaluation Services network. U.S. Services administers state health-and-human-services programs — Medicaid enrollment, child support, employment services. Outside the U.S. is a smaller employment-and-health-services operation concentrated in the U.K.

Source: FY2025 Form 10-K, Note 3 Business Segments [7].

The concentration is the defining feature. In fiscal 2025, about 55% of revenue came from the U.S. federal government and about 33% from state and local agencies — roughly 88% from government, with most of the rest from national governments abroad [8]. It is concentrated further within that: roughly 60% of revenue came from the ten largest contracts, and about one-fifth from a single federal agency [9]. This is a company whose fortunes are tied to a small number of government relationships.

How it gets paid matters for the cash-flow question. About 54% of revenue is performance-based — paid per transaction or per outcome, such as a completed medical exam or a sustained job placement — and 13% is fixed-price; the balance is cost-plus and time-and-materials work [10]. Performance-based contracts carry estimation risk but tend to scale with citizen activity rather than headcount, which is central to the margin story developing now.

Scale and trajectory

Revenue has grown from about $2.45 billion in fiscal 2017 to $5.43 billion in fiscal 2025 — roughly a 10% annual rate over eight years, and a 9.4% five-year compound rate [11]. Two acquisitions in 2021 — the Veterans Evaluation Services and federal-technology businesses — roughly doubled the goodwill on the balance sheet and lifted federal exposure. Operating cash flow has been positive every year but lumpy, ranging from $245 million to $517 million over the period, a pattern the reader focused on cash-flow consistency will want to test.

Source: FY2025 Form 10-K, Consolidated Statements of Operations and Cash Flows; prior-year figures per company filings, as reported [12].

Contracted backlog stood at $15.3 billion at September 30, 2025 — about 2.8 times annual revenue — which gives the top line reasonable forward visibility, though the company cautions it may not realize all of it [13].

The economics

This is an asset-light services model. Capital expenditure was $63 million in fiscal 2025 against $429 million of operating cash flow, so free cash flow was $366 million; the prior year converted $515 million of operating cash flow into $401 million of free cash flow [14]. Operating margin was 9.7% [15] and Adjusted EBITDA margin 12.9%; on an adjusted basis that excludes acquisition intangible amortization, diluted earnings were $7.36 per share versus $5.51 reported [16].

The recent operating story is margin, not growth. Management credits automation and AI tools that "decouple labor costs from our ability to process more volumes" — the same forces that let a per-transaction contract earn more without adding people [17] — and on that basis has guided the federal segment to a 17.5% full-year operating margin and raised its near-term Adjusted EBITDA margin target to 12–15% [18]. Against that, revenue is guided to be roughly flat-to-down in fiscal 2026 at $5.2–5.35 billion as elevated pandemic-era and natural-disaster volumes roll off; adjusted EPS is guided to $8.05–8.55, up about 14%, and free cash flow to $450–500 million [19]. Earnings and cash are being guided higher even as the top line pauses.

Balance sheet and capital return

Maximus carries net debt — about $1.4 billion at March 31, 2026 against $157 million of cash — but leverage is moderate at 1.75 times EBITDA on the credit-agreement definition, inside its own 2–3x target [20]. Because goodwill and intangibles (about $2.3 billion) exceed book equity ($1.7 billion), tangible book value is negative — normal for an acquisitive services business, but a reason tangible price-to-book is not a useful anchor here [21].

Capital return has stepped up sharply. In fiscal 2025 the company repurchased 5.8 million shares for $462 million [22], and it kept buying into the 2026 decline, authorizing a fresh $400 million program in May 2026 while stating it prioritizes repurchases "when we believe our share price does not reflect the intrinsic value of the business" [23]. Shares outstanding have fallen from 60.4 million in September 2024 to 52.5 million by May 2026, a 13% reduction, alongside a $1.20 dividend [24].

Sources: FY2025 Form 10-K, Statements of Changes in Shareholders Equity [25]; Q2 FY2026 Form 10-Q cover, 52,540,363 shares outstanding as of May 4, 2026 [26].

The stock and what the price implies

The share price roughly doubled from late 2023 to an all-time high near $99 in January 2026, then fell about 41% to $58 by July 2026 — the drop coinciding with fiscal-2026 guidance for flat-to-lower revenue and a working-capital build that pushed days-sales-outstanding to 78 days at a large federal customer [27], with the veterans-exam contract — the anchor of the 2021 acquisition — running through December 2026 and due for recompete [28]. An earlier, smaller drawdown in early 2025 followed the launch of the federal Department of Government Efficiency (DOGE), whose stated goal of cutting federal spending is a direct risk to a contractor that draws most of its revenue from Washington [29].

Source: market price data, as reported; period-end and 52-week-high closing prices.

What the reader gets at $58 is a specific arithmetic. On a $3.06 billion market capitalization, trailing free cash flow of $366 million is a 12.0% yield, and the $450–500 million guided for fiscal 2026 would be roughly 15%. Enterprise value of about $4.4 billion is 6.3 times fiscal-2025 Adjusted EBITDA, and the price is near 7 times the midpoint of guided adjusted EPS — with the share count still shrinking.

Source: derived from FY2025 Form 10-K figures [30] [31], FY2026 guidance [32], and market price; leverage per the Q2 FY2026 10-Q [33].

Multiples this low usually price a business the market believes is about to shrink. The bull case is that the fear is misplaced: much of Maximus's work runs mandatory programs — Medicare, Medicaid, veterans' benefits — that persist across administrations, and its state contracts are paid by citizen activity, so tighter eligibility rules can raise transaction volumes even as they cut the benefit rolls [34]. The bear case is equally concrete: 60% of revenue sits in ten contracts, one-fifth in a single agency, the largest of those faces recompete, and DOGE is an explicit effort to spend less on exactly this kind of vendor.

What this report tests

The reader's standard is a durable moat that keeps free cash flow strong — even if it stops growing — for at least a decade. Maximus arrives with the cash-flow economics that standard rewards: a 12% trailing free-cash-flow yield, 1.75x leverage, and a shrinking share count, all after a selloff that halved the equity while management guided cash flow higher. Durability is the open question, and it runs through every chapter that follows:

Is Maximus's incumbency in administering mandatory U.S. government benefit programs a durable enough franchise to keep free cash flow consistent, and probably higher, a decade from now — or is the market right that federal budget-cutting and the recompete of concentrated, essential contracts will steadily erode a business that depends entirely on government spending?

Answering it means testing four things in turn: how consistent the cash flow actually is beneath the lumpy headline; whether incumbency in these programs is a real switching-cost moat or just a recurring bid; what the DOGE-era policy shift does to demand; and what the depressed price is discounting relative to a defensible estimate of long-run cash generation.