When someone is calling to apply for a health plan under the
Affordable Care Act -- often called ObamaCare -- chances are a
Maximus employee may answer the phone.
In addition, the contact center representative will also input
and digitize the application, request any missing info, verify
eligibility, help choose the plan and notify the managed care
plan of the selection.
This is only a portion of the services that the Reston,
Va.-based firm provides to states and governments
) also runs comprehensive services for the Children's Health
Insurance Program (CHIP) and Medicaid, helps consumers access
long-term care, assists students in managing their loans, and
aids people on welfare in joining and remaining in the
However controversial the topic of U.S. federal spending and
ObamaCare may be now, it represents a portion of business for
Maximus, which has a long and broad history in getting work done
with programs that many governments implement.
The company currently operates 300 offices in the U.S.,
Canada, U.K., Australia and Saudi Arabia. It employs 11,000
people, striving to provide localized services in developed
countries with a favorable regulatory environment.
"Our mission statement is helping governments serve the
people," said Maximus CEO Rich Montoni. "Unlike many of our
competitors, we've done this for nearly 40 years. It's been our
sole focus and I really think it differentiates us in the
When Maximus manages a program for a government or state, it
is the first point of contact as people apply for benefits. Its
business units are health care and human services. Health care
includes services for federal or state health plans. Human
services helps the unemployed find and keep jobs. Such programs
are underway in the U.K. and Australia, with a pilot program in
the U.S .
Capitalizing On Government
In fiscal 2013, the company booked $1.3 billion in revenue, of
which 65% was from health services and 35% from human services.
Three-quarters of the revenue came from the U.S., with the rest
generated internationally. Maximus expects total revenue of $1.6
billion to $1.8 billion in fiscal 2014.
Besides its two federal health insurance marketplace call
centers, Maximus counts the most contracts of firms providing
services to state health insurance exchanges. It manages those
programs in eight states and the District of Columbia.
It has a very large presence in Medicaid programs. "One out of
every two Medicaid managed care beneficiaries are served by
Maximus," said Charles Strauzer, senior managing director at CJS
The Affordable Care Act program is expected to yield over $200
million in annual revenue, said Montoni. Government and state
contracts are usually multiyear and include another three to five
option years. As a result, revenue is highly predictable over
Several players are in the space, though none are pure-play
companies like Maximus.
Competitors includeFTI Consulting (
),Korn/Ferry International (
) andICF International (
), which vaulted more than 20% in the stock market Thursday on a
well-received earnings report it delivered Wednesday afternoon.
While its federal and state businesses declined slightly, ICF
cited education, public health and international health survey
research as "growth areas" in its report.
When picking which company to award a contract, "a lot of
weight is placed by the governments on the vendor's ability to
get the job done, the reliability and the dependability," said
Montoni. "Maximus, having been in this business for quite some
time, I think we've done a very good job to build that reputation
and I think it benefits us significantly in the marketplace."
The market is also trending more toward performance-based
compensation. "They get paid based on volumes, call volumes,
mailings, number of applications they process, number of people
they enroll," said Strauzer. "On the human side, it's placement
rates, longevity of placement ... retention bonuses."
Maximus' sales pipeline, consisting of sales opportunities
that it is tracking both in the U.S. and abroad, stood at $2.4
billion at the end of December. The company signed $347 million
in awards year to date through December and had $50 million in
new contracts pending final signature.
It saw a higher level of activity in its health exchange
market services the last six weeks of 2013 as more consumers than
expected sought help via its contact center, due to technological
difficulties on the Healthcare.gov website. ObamaCare
implementation issues have been widely reported in the media.
This helped propel Maximus' first quarter of fiscal 2014 above
guidance and analyst forecasts. Sales for the health services
segment surged 70%, while human services revenue was down 3%. All
in all, revenue soared 42% to $407 million. The health segment's
operating margin also outpaced expectations.
Earnings per share jumped 55% to 48 cents, marking a sixth
consecutive quarter of double-digit growth and acceleration in
the past three quarters. Maximus raised fiscal 2014 guidance,
based on the stronger-than-expected first quarter, greater scope
of work on several contracts supporting rollout of ObamaCare and
improved forecasts in other service areas.
Student Debt Deal
Maximus also recently announced that it finally was awarded a
contract by the U.S. Department of Education's Office of Federal
Student Aid to manage a program helping with debt and collection
management of student loans.
The award was originally protested by another bidder, but both
firms reached a negotiated solution: The protester will perform
certain services as a subcontractor under Maximus. Earnings and
revenue guidance for 2014 remain unchanged.
"There is a high degree of concern that many students have
borrowed a lot of money, and while they are obligated to repay
these loans they have not received the job opportunities they
anticipated," said Montoni. He notes that the amount of debt is
expected to reach $1 trillion shortly.
As with any business, there are always certain risks. One of
them, says Strauzer, is that government can change its mind or be
prone to political pressures, alter its department structure or
the course for certain programs, requiring renegotiation of
contracts. The timing and size of funding also plays an important
role, as most programs are federally mandated and budgets can
There is also operational risk in building out systems,
especially if they don't work consistently. Maximus has an
advantage in that it is less involved in the technology side than
the contact center side. Finally, in human services, compensation
is often based on longevity of worker placement. If workers don't
stay in their jobs a long time, there could be a loss in
Maximus management has a strong track record. CEO Montoni has
made improvements and streamlined the business in the past seven
years. Chief Financial Officer David Walker is retiring, but
plans to stay until a replacement is found.
The company pays a quarterly dividend and pursues
opportunistic share buybacks. It's staying open for future add-on
acquisitions. Its cash flow and balance sheet are solid, with no
debt. "You've got a company that's got a very high visibility
outlook, with strong growth in front of it," said Strauzer.