Maximus (NYSE:MMS) Q4 2025 Earnings Call November 20, 2025 09:00 AM ET Company ParticipantsBruce Caswell - President and CEODavid Mutryn - CFOWill Gildea - Equity Research AssociateJames Francis - VP of Investor RelationsOperatorGreetings and welcome to the Maximus Fiscal 2025 Fourth Quarter and Year-End Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the ...

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Core Points - The U.S. Congress passed a temporary federal funding bill, ending a record 43-day government shutdown, which had significant negative impacts on the economy and public welfare [1] - The shutdown affected 42 million Americans relying on the Supplemental Nutrition Assistance Program, causing emotional distress among low-income families [2][3] - The aviation industry faced severe disruptions, with thousands of flights delayed or canceled, leading to economic losses estimated between $285 million to $580 million daily [7][8] Economic Impact - The government shutdown is expected to reduce the U.S. GDP growth rate by 1 to 2 percentage points in the fourth quarter, with an estimated economic loss of $11 billion if the shutdown lasts six weeks [8][10] - The prolonged shutdown has exacerbated existing economic weaknesses, with potential long-term effects on public welfare and travel sectors [10]

Group 1 - The U.S. government shutdown has reached a historic record of 38 days, surpassing the previous record of 35 days from 2018-2019, primarily due to a lack of compromise between the two political parties [2][5][19] - The shutdown is a result of a "money bag struggle" between the Democratic and Republican parties, with Democrats advocating for social welfare spending and Republicans opposing it, leading to an impasse on budget negotiations [8][11][29] - The shutdown has severe implications for public services, particularly in the aviation sector, where 1.3 million air traffic controllers and 50,000 airport security personnel are working without pay, resulting in a 10% reduction in flight capacity at major airports [17][19] Group 2 - Economic losses from the shutdown are significant, with estimates indicating a loss of $7 billion after four weeks, escalating to $14 billion after eight weeks, which could have been used for public assistance [19][21] - The financial markets are experiencing instability, as the Federal Reserve is unable to make informed decisions on interest rates due to the lack of government data, leading to concerns about liquidity and market confidence [21][25] - The ongoing shutdown poses a risk of long-term economic damage, with potential layoffs and business closures if it extends beyond Thanksgiving, further exacerbating the economic situation [25][29]

Core Points - The longest federal government shutdown in U.S. history has entered its 37th day, leading to widespread economic and social impacts, with millions affected by the political deadlock [1][2] Group 1: Economic Impact - Hundreds of thousands of federal employees are either furloughed or working without pay, pushing many American families into financial distress [2] - The food stamp program is facing imminent funding depletion, with nearly 5 million people expected to receive no benefits this month due to the shutdown [2] - The aviation industry is experiencing significant operational disruptions, with the FAA reporting staff shortages leading to flight delays at major airports, including an average delay of 45 minutes at Ronald Reagan Washington National Airport [5][7] Group 2: Industry-Specific Effects - Major airlines, including United Airlines and Delta Airlines, are preemptively canceling flights due to the anticipated reduction in air traffic capacity, with United canceling about 200 flights, representing 4% of its schedule [7] - The shutdown is also impacting other critical sectors such as manufacturing, tourism, and logistics, which are under pressure from the ongoing political stalemate [8] Group 3: Political Dynamics - The inability of Congress to pass a temporary funding bill is primarily due to disagreements between the Democratic and Republican parties over healthcare spending, particularly related to the Affordable Care Act [11][13] - The political deadlock is characterized by mutual blame, with both parties using the situation to bolster their influence while millions of Americans suffer [14]

Economic Impact - The U.S. government shutdown resulted in an estimated economic loss of $18 billion, with about half of this loss potentially being irrecoverable [1][4][18] - The shutdown caused a significant reduction in GDP due to the furlough of hundreds of thousands of federal employees and contractors, leading to decreased productivity and interrupted government services [4][7] Industry Effects - Various industries experienced direct impacts, such as a small company in Washington D.C. that lost a government contract due to halted project approvals, resulting in layoffs [7] - A defense equipment supplier in Texas faced delayed payments from the military, leading to cash flow issues and the need to request loan extensions [9] Consumer Behavior - Local businesses, such as restaurants in Arlington, Virginia, reported a nearly 50% drop in lunchtime traffic due to reduced spending by federal employees [9] - Consumers became more cautious with their spending, leading to decreased sales tax revenue and stalled community projects [9] International Trade - The shutdown delayed customs safety certifications for a California electronics company, causing missed shipping windows and financial penalties [12] Macroeconomic Policy - The shutdown disrupted the Federal Reserve's ability to assess economic conditions accurately, delaying monetary policy adjustments [13] Government Financial Management - Although the shutdown reduced government spending temporarily, subsequent wage payments and contract penalties increased overall costs, raising concerns about the government's fiscal management [17] - Rating agencies indicated that repeated shutdowns could lead to a reassessment of the U.S. fiscal creditworthiness [17] Long-term Outlook - The shutdown's effects on the economy may lead to a contraction in consumer spending and market demand, exacerbated by the announcement of additional tariffs on Chinese imports [18][19] - Calls for budget reform and the establishment of emergency funds have emerged as potential solutions to prevent future shutdowns [19]

Core Insights - The U.S. government shutdown has led to the postponement of key economic data releases, including the third-quarter GDP, which was originally scheduled for this week [1] - The lack of federal data is causing policymakers, financial institutions, and businesses to make decisions without critical information, resulting in "blind decision-making" [1] - The U.S. Chamber of Commerce reported that in the first four weeks of the government shutdown, businesses contracted with the federal government have incurred losses of approximately $12 billion, with around 65,500 small businesses losing about $3 billion weekly [1]

Financial Data and Key Metrics Changes - Revenue for Q3 2025 was flat year-on-year at $1.9 billion, but up 5% year-to-date compared to the previous year [6][18] - Adjusted EBITDA increased by 10% to $240 million, with margins rising over 100 basis points to 12.4% [8][18] - Adjusted EPS rose by 21% to $1.02, driven by improved adjusted EBITDA performance and share buybacks [8][18] - Operating cash flow for the year-to-date reached $506 million, a 24% increase from the prior year, with a conversion rate exceeding 130% [8][18] Business Line Data and Key Metrics Changes - Mission Technologies (MTS) revenues were flat at $1.4 billion, with Defense and Intelligence growing by 14%, while Readiness and Sustainment declined by 22% [20][22] - Sustainable Technology Solutions (STS) revenues decreased by 1% to $525 million, but adjusted EBITDA increased by 13% to $123 million, with margins at 23.5% [22][24] - The book-to-bill ratio for MTS was 1.4x, while STS delivered a 1.2x book-to-bill excluding LNG [16][22] Market Data and Key Metrics Changes - KBR's backlog plus options increased to over $23 billion, a 13% rise from the previous year, marking the highest backlog in the company's history [13][36] - The company has $18 billion in bids pending award, with over 75% representing new business opportunities [13][15] - The U.S. funded backlog was $2 billion at the end of Q3, providing over five months of revenue run rate [26] Company Strategy and Development Direction - KBR is pursuing a spin-off of its Mission Technologies segment, aiming for completion by mid to late 2026, which is expected to enhance strategic focus and operational independence [31][33] - The company is focusing on geographical expansion and strategic partnerships, particularly in the Middle East and energy sectors [7][12] - KBR aims to increase exposure to recurring revenue streams, particularly in the OPEX side of the STS business [18] Management's Comments on Operating Environment and Future Outlook - Management noted resilience in the STS business despite headwinds from government shutdowns and project delays, with expectations for improved revenue in Q4 [7][26] - The company anticipates continued momentum in both segments heading into 2026, supported by a strong pipeline of opportunities [8][42] - Management expressed confidence in navigating the challenges posed by the government shutdown, with minimal impact on revenue expected [26][36] Other Important Information - KBR returned over $120 million in capital to shareholders during the quarter while managing leverage responsibly [9][24] - The company has received a top AAA rating from MSCI for sustainability efforts and allocated $2.9 billion towards sustainability initiatives in fiscal 2024 [5][6] Q&A Session Summary Question: Outlook for STS in 2026 - Management indicated good visibility for continued momentum in STS, aligned with growth targets of 11-15% for 2026, despite needing to replace energy transition projects [40][42] Question: MTS performance and growth - Management highlighted strong growth in Defense and Intelligence, with confidence in achieving growth targets despite pressures in other areas like NASA [44][46] Question: NASA exposure and budget cuts - Management noted minimal impact from NASA budget cuts for the remainder of the year, with expectations for increased investment in human space performance [54][56] Question: LNG opportunities - Management confirmed active discussions and ongoing projects in LNG, with positive expectations for future contributions from various LNG projects [58][60] Question: STS margins and backlog - Management explained that current margins are affected by timing and proprietary equipment sales, with expectations for mid-teens margins to be sustainable [100][102] Question: International opportunities in Australia and the UK - Management reported strong performance and brand recognition in Australia, with a robust pipeline of opportunities in both Australia and the UK [113]

Core Points - The current U.S. government shutdown is nearing its 30th day and could become the longest in history if it surpasses 35 days, which occurred from December 2018 to January 2019 [1] - The impending funding deadline may force Democrats and Republicans to reach an agreement, but predictions suggest the shutdown could last approximately 47 days, with only a 9% chance of ending before next Tuesday [1] - Analysts believe that as voters begin to feel the real impacts of the shutdown, the difficulty for both parties to maintain their positions will increase, potentially leading to a breakthrough around Thanksgiving [1] Funding and Payroll Deadlines - Key funding and payroll deadlines are approaching, with military pay day on October 31, where military personnel may not receive their salaries on time [3] - The last military payroll on October 15 utilized $8 billion from unused military research funds, raising concerns about the legality of such actions [3] Obamacare and SNAP Program - Critical deadlines for the Affordable Care Act (ACA) and the Supplemental Nutrition Assistance Program (SNAP) are set for November 1, with potential impacts on insurance subsidies and food assistance [4] - Democrats may use the ACA open enrollment period as leverage to negotiate, blaming Republicans for the lack of progress [4] Local Elections - Local elections in New Jersey and Virginia on November 4 could influence the political landscape, with potential implications for the Democrats' healthcare agenda [5] - A significant victory for Democrats could bolster their position in negotiations regarding the shutdown [5] Trump's Role in Negotiations - Trump's return to Washington from Asia may catalyze new negotiations, as his absence has been noted as a barrier to breaking the deadlock [6] Union Pressure - The American Federation of Government Employees is pressuring Congress for a "clean" reopening bill, emphasizing the struggles of federal employees facing missed paychecks [7] House Funding Bill Deadline - A funding bill passed by the House is set to expire on November 21, with discussions ongoing about extending funding to December or even 2026 [8] - The likelihood of the shutdown continuing until Thanksgiving is increasing due to the House being in recess [8] Travel Disruptions - Travel disruptions are already occurring, with flight delays attributed to a shortage of air traffic controllers, which could serve as a catalyst for ending the shutdown if it persists into the holiday travel season [9]

Core Points - The U.S. federal government shutdown has entered its 27th day, marking the second-longest shutdown in history, significantly impacting various aspects of American society [1] - If the shutdown remains unresolved this week, an increasing number of Americans will face severe disruptions in their daily lives [1] Group 1: Impact on Social Programs - The U.S. Department of Agriculture has announced the suspension of the Supplemental Nutrition Assistance Program (SNAP), commonly known as food stamps, which will cease distribution on November 1, affecting approximately 42 million people, or one-eighth of the U.S. population, primarily low-income individuals and disabled persons [3] - The Women, Infants, and Children (WIC) program, which provides nutritional assistance to about 7 million low-income mothers and children, is also on the verge of being halted, with funding expected to run out by November 1 [5] - The "Head Start" program, which supports early childhood education for over 800,000 children under the age of six, will see funding cuts starting November 1 due to the ongoing shutdown [5] Group 2: Impact on Community Services - A subsidy program for airline services in remote small communities is projected to run out of funds this weekend, jeopardizing essential air travel for these areas, which rely on the program for access to daily necessities and medical services [7] - The military is at risk of not receiving pay on the scheduled payday of October 31 if the shutdown continues, with many federal employees facing their first complete paycheck absence on October 28 and 30 [7]