Non-Federal Segments

Non-Federal Segments

Roughly 44% of Maximus's revenue sits outside U.S. Federal Services, in two segments the report has so far treated as a footnote to the Federal margin engine. Both shrank in fiscal 2025, for opposite reasons: management has spent three years divesting the international business down to a smaller, finally-profitable core, while U.S. Services gave back a temporary Medicaid-redetermination volume bulge. The net effect is a portfolio steadily concentrating toward the same federal exposure the thesis worries about.

The other 44%, and what it earns

In fiscal 2025 the two non-Federal segments produced $2.36 billion of revenue — 43.5% of the company's $5.43 billion total — but only $193.7 million of the $662.8 million segment operating income, about 29% [1]. U.S. Federal Services, on 56.5% of revenue, throws off 70.8% of segment profit [2]. Earnings are more concentrated than revenue, and the gap is widening.

Source: FY2025 segment results — revenue, segment operating income and margin by segment [3].

The revenue mix has moved steadily toward Federal. Federal Services grew from 49.0% of revenue in fiscal 2023 to 56.5% in fiscal 2025; Outside the U.S. fell from 14.0% to 11.0% over the same window [4]. That shift is not an accident of growth rates — it is partly the result of deliberate decisions in the other two segments.

Sources: FY2023–FY2025 from the FY2025 10-K segment note [5]; FY2022 as reported in prior filings.

Outside the U.S.: a deliberate exit, not a retreat

The international segment has been the company's weakest performer — loss-making as recently as fiscal 2023, at a $9.1 million operating loss on a negative 1.3% margin [6]. Management's response was to sell, not to fix in place. Since early 2023 Maximus has divested businesses across at least seven countries: the U.K. commercial practice and its Swedish subsidiary in March 2023; Italy, Singapore and its Canadian employment-services business in November 2023; and Australia and Korea in December 2024 [7].

Source: FY2025 10-K, Note 7 — Acquisitions and Divestitures [8].

The December 2024 exit from Australia and Korea drove $39.5 million of divestiture-related charges in fiscal 2025, of which roughly $21.3 million was accumulated foreign-exchange losses recycled out of equity and $11.3 million an indemnification to the buyer — non-cash and one-time, not an operating deterioration [9]. What the sales left behind is a smaller but healthier segment. Revenue fell 8.7% to $599.9 million in fiscal 2025, but that was the divestitures at work; the retained portfolio grew 4.1% organically [10]. The operating margin more than tripled, from 1.2% to 3.7%, and for the first time sits inside management's stated 3%-to-7% target range "due to divesting more volatile elements of the portfolio" [11].

Management has framed the intent plainly: the segment "has tempered losses through a rebalancing of its contract portfolio and the divestiture of a number of operations as part of an effort to improve performance and deliver consistent profitability," and it anticipates "a smaller footprint once completed" [12]. The retained core is concentrated in the U.K. — including the Functional Assessment Services contract that replaced the prior HAAS work — and Australia's Workforce Australia program [13]. This is portfolio pruning working as intended; the reasonable read is that it improves quality of earnings even as it removes the diversification that a wider geographic footprint once provided.

U.S. Services: a policy-cycle trough, not erosion

The second non-Federal segment tells a different story. U.S. Services — state and local health-and-human-services work, chiefly Medicaid and ACA eligibility, enrollment, child support and employment programs — saw revenue fall 7.7% to $1.76 billion and its operating margin drop from 12.9% to 9.7% in fiscal 2025 [14]. On the numbers alone that looks like a deteriorating business. The cause, on management's account, is narrower: the prior year "contain[ed] excess volumes from Medicaid-related activities, including the extra redeterminations from the unwinding exercise," and "the higher margin in the prior year period was a direct benefit of the excess volumes that were temporary" [15].

Sources: FY2023–FY2025 from the FY2025 10-K segment note [16]; FY2022 as reported in prior filings.

The mechanism is the pandemic Medicaid cycle. During the COVID public-health emergency, states paused eligibility redeterminations; when the pause ended, the "unwinding" pushed a surge of redetermination work through Maximus's state contracts, lifting fiscal 2024 volumes and margins [17]. As that one-time caseload cleared, fiscal 2025 stepped back down. A meaningful portion of roughly $16 million in company-wide fourth-quarter severance charges also landed in the segment [18]. The segment's backlog is consistent with a trough rather than a decline: it edged up to $3.92 billion at September 30, 2025 from $3.87 billion a year earlier, even as revenue fell [19].

The forward case for the segment rests on the same statute the Recompete Durability chapter flagged as a company-wide tailwind. The 2025 One Big Beautiful Bill Act raises Medicaid adult-expansion redetermination frequency from annual to semi-annual and adds work-requirement verification, effective December 31, 2026, and Maximus is "a leading provider of such service to state governments" [20]. Management expects those provisions to "positively influence U.S. Services organic growth" but is candid that it is "not factoring them heavily into our fiscal year 2026 guidance," and that "the prospects in other program areas are actually more significant than those in the Medicaid sector" [21]. The trough read is well-supported; the recovery is an identified opportunity, not a booked one.

The concentration this leaves behind

Taken together, the two segments reveal a portfolio decision that the Federal-centric chapters do not capture on their own. Maximus is deliberately shrinking its international footprint and has just cycled its second-largest segment down off a policy-driven high — while the Federal engine grows. The company that results is a more concentrated bet on U.S. federal spending than it was three years ago, which is the same federal exposure the report weighs.

That cuts two ways, and the evidence does not fully settle it. The constructive read is that management is doing exactly what a disciplined operator should — culling loss-making and volatile international operations, and treating a temporary state-Medicaid surge as temporary rather than extrapolating it — so the earnings that remain are higher-quality even if less diversified. The cautious read is that the diversification a bull might point to as ballast against federal budget risk is being actively reduced, at the same moment federal exposure is the market's principal worry.

Two observable items would tip the balance. First, whether U.S. Services revenue and margin stabilize near the fiscal 2025 level and then re-accelerate as the December 2026 Medicaid provisions take effect — or keep sliding, which would recast the FY2025 step-down as the start of a decline rather than a trough. Second, whether the trimmed Outside-the-U.S. segment holds inside its 3%-to-7% target range now that the volatile pieces are gone [22]. Neither is resolved today; both are checkable in the next few filings.