Good morning. Welcome to the Maximus call on their agreement to acquire Agile Defense. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, James Francis, Vice President of Investor Relations. Thank you. You may begin.
Good morning and thanks for joining us. With me today is Bruce Caswell, President and CEO, and David Mutryn, CFO. I would like to remind everyone that a number of statements being made today will be preliminary or forward-looking in nature. Please remember that such statements are preliminary and subject to adjustment or 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 Form 10-K. We encourage you to review the information contained in our recent filings with the SEC and our 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 forthcoming 10-K.
With that, I will hand the call over to Bruce.
Thanks, James, and good morning. Earlier, we announced that we have signed an agreement to acquire privately-owned Agile Defense. As we continue to execute our objective to position Maximus for the future, this acquisition is a natural next step in progressing key components of our long-term strategy. First, we have consistently discussed our desire to further expand within attractive segments of the U.S. federal market that we believe are capable of high organic growth in their own right, building upon earlier successful organic growth efforts. Agile Defense accelerates our access and presence within the defense and national security markets by bringing an earned and highly regarded reputation in serving the Department of War, Department of Homeland Security, the intelligence community, and federal law enforcement functions.
These capabilities address some of our nation's most critical and fastest-growing priorities across these federal departments and should provide substantial reach into these high-potential growth markets with durable spending characteristics. Second, this acquisition should accelerate our technology evolution by significantly strengthening our capabilities and domain knowledge in mission-focused data analytics and artificial intelligence, cybersecurity, and cloud modernization. In today's defense procurement environment, capabilities and domain knowledge alone are insufficient to succeed. Equally important are demonstrated success in what are known as nontraditional procurement models, such as other transaction agreements or OTAs, which can greatly compress the time from concept and prototype to production deployment and impact at scale. Agile Defense brings to Maximus a proven track record of winning in both the traditional and nontraditional procurement models. Agile Defense's capabilities, customer relationships, and highly skilled workforce is expected to provide Maximus with an enlarged platform for future growth.
First in the defense and national security community, but also in response to the evolving needs of federal civilian agencies. Maximus serves approximately 1 in 3 Americans through the programs we deliver on behalf of our customers. We pride ourselves in being a leader in transforming government services through technology automation, including responsible customer-driven AI deployment. Together with Agile, Maximus seeks to build on our leading position in citizen services delivery while broadening our participation in technology-intensive federal missions. We believe this combination can create long-term value for customers and shareholders. We view the acceleration of our presence within defense and national security as a strategic imperative and one that builds on our organic growth success with customers, including the Air Force Joint Cyber Command and Control, or JCC2, and the Transportation Security Administration.
We are particularly attracted to these missions because we believe they represent clear priorities of the federal government that we expect to last long into the future and align with capabilities and senior leadership in which we've been investing for years. They require continuous investment, attract significant innovation, and are increasingly dependent on advanced technology, cybersecurity, data pipeline creation, sensor integration, artificial intelligence, cloud adoption, and digital capabilities to deliver mission priorities. Agile Defense is expected to significantly expand our relationships, qualifications, and capabilities within the Department of War, national security, and federal law enforcement communities. We see a strong demand signal, and we believe our Maximus addressable services market in the Department of War will alone reach $58 billion by 2029. Technology services, including IT and digital modernization, software and analytics, in which Agile Defense is well-positioned, is the fastest-growing segment and comprises $21 billion of this addressable market.
Further, beyond the procurement of technology services and solutions, a significant and growing portion of our defense budget is allocated to research and development, testing, and evaluation, or RDT&E. Agile Defense brings highly desirable qualifications in this area, including a single award IDIQ contract with a ceiling of $1.01 billion Defense-wide. The FY 2027 RDT&E budget request represents 137% growth over FY 2026, and at $343.7 billion is 83% the size of the corresponding defense procurement budget. We believe these budget outlooks reflect a macro demand environment where our national defense priorities will place greater reliance on capabilities that advance cross-program and platform integration, joint interoperability, sensor and network integration, data pipeline construction, and AI-driven analytics. As the DoW weapon systems ecosystem becomes increasingly interconnected, linking C5ISR systems and autonomous edge devices, increasing complexity will require ongoing significant investment in RDT&E.
Furthermore, work in this area requires a high degree of cleared resources, facility access, and that RDT&E contractors provide continuous agility and independence from traditional OEMs. The combination with Agile Defense brings these desirable attributes to Maximus and helps build on the independent and conflict-free status that we have maintained, providing favorable barriers to entry in certain civilian business lines. As we have demonstrated with prior acquisitions, our objective is to support customer missions where there are opportunities to strengthen a competitive position amidst ongoing demand for services that are underpinned by prioritized funding streams. We believe that Agile Defense fits this formula to facilitate sustainable, diversified, long-term growth, which we regard as an important characteristic of our business. Let me turn to offer a more detailed picture of what Agile Defense offers its customers and some interesting features of the company.
Agile Defense brings deep technical expertise, innovation, and mission understanding developed through years of supporting customers that range from the Defense Information Systems Agency, or DISA, and the Chief Digital and Artificial Intelligence Office, or CDAO, under the DoW, to the US Army and US Cyber Command. Agile's relationships also extend to USCIS in the Department of Homeland Security. A particularly compelling aspect of Agile Defense is Agile Labs, the company's innovation engine that we believe can be a powerful driver of growth and differentiation across the companies. Agile Labs brings specialized technical talent, applied research and development capabilities, and expertise in emerging technologies that help customers rapidly translate innovation into mission outcomes, all within the secure, AI-enabled solutions they demand from Maximus today.
We believe the combination enables Maximus to extend the reach and impact of our existing investments in software engineering, secure platforms, and novel delivery services across a broader set of customer missions. As an example, through its forward-deployed engineers and trainers, Agile Labs brings high-performance AI-driven engineering and Department of War-proven AI harness that shorten the time between data integration and AI-enabled decision-making, and training for combatant commands and joint staff. Agile Labs provides a platform for continued modernization designed to deliver new capabilities at speed that government missions demand and strengthens Maximus' technology leadership. Across government, customers increasingly seek partners that can do more than deploy technology. They need partners that can translate technology investments into measurable mission outcomes, bring together mission expertise, secure integration, and execution that make AI operationally effective, even as the underlying models continue to advance.
For this reason, Agile Labs is embedded in many of the programs delivered by Agile Defense and plays a leading role in their CDAO enterprise-wide OTAs. Further demonstrating their alignment with the preferred purchasing models of the DoW, over 50% of Agile Defense's revenue comes from fixed-price contract arrangements and only 6% from cost-plus work. Together, this ability to rapidly deliver technology capabilities and solutions, often in the field, under non-traditional structures and on a performance basis, we believe positions Agile Defense to contribute organic growth at a rate in excess of our traditional civilian business lines. As we combine our organizations, we believe there will be opportunities to integrate Agile Defense capabilities into existing Maximus customer relationships while also bringing Maximus' operational expertise and technology-enabled solutions to a broader set of federal customers.
More specifically, Agile Defense provides Maximus with valuable access to established customers, contract vehicles, technical qualifications, and more than 1,100 cleared professionals that strengthen our ability to pursue opportunities across the national security marketplace. There are also native elements of the company that we've been seeking, one notable example being a certified procurement system. Correspondingly, with our CMMI Level 5 designation and highly desirable FedRAMP boundary, Maximus brings new capabilities to support Agile Defense. Importantly, the combination expands our addressable opportunity pipeline beyond the simple addition of the two companies' existing pipelines, unlocking a new set of opportunities that neither organization could have pursued as effectively on a standalone basis, and increasing the p-win on joint pipeline opportunities.
We believe the combination creates a stronger platform for innovation by bringing together complementary technical, operational, and mission-focused capabilities to support increasingly complex customer missions while continuing to deliver the quality and reliability our government partners expect. Finally, an important consideration in pursuing this deal was the recognition that the cultures of our organizations are highly aligned, as both companies are mission-driven, focused on customer outcomes, and recognize that lasting success comes from combining talented people, innovative technology, and disciplined execution. I'll close my remarks by underscoring that Agile Defense's deep multi-domain expertise and strong reputation are expected to provide the foundation for Maximus to meet the increasingly complex priorities of government while accelerating our evolution as a federal technology and mission services company. Together, we expect to create a stronger platform to support customers across healthcare, civilian, defense, national security, and federal law enforcement missions.
To our new colleagues that we anticipate joining us from Agile Defense, we're excited about the experience, expertise, and mission focus that you will bring to Maximus. We share your commitment to excellence, innovation, integrity, and service. Together, we will continue to help governments achieve outcomes that matter while creating new opportunities for growth, innovation, and long-term value creation. With that, I'll turn the call over to David to discuss the transaction details and financial considerations.
Thanks, Bruce. As a management team, one of our primary objectives is to deploy capital in ways that create and enhance long-term shareholder value. We continue to view strategic M&A as an important component of our capital allocation framework and believe acquisitions can be an effective way to accelerate growth, expand capabilities, and strengthen our competitive position. Like our previous acquisitions, we have applied the same disciplined process in evaluating Agile Defense. We assessed the strategic fit, customer relationships, technology capabilities, cultural alignment, financial profile, and long-term value creation opportunities associated with the transaction. Our longstanding primary intent with acquisitions is to accelerate sustainable organic growth and thus long-term shareholder value, and we believe this transaction aligns squarely with that strategy. The contracted purchase price is $660 million and is subject to certain customary adjustments, including a future earn-out that could total up to $50 million.
We anticipate closing the acquisition during this first fiscal quarter of 2027, subject to customary closing conditions and regulatory approvals. The transaction will be funded through a combination of cash on hand, borrowings on our revolver, and an expansion of our existing Term Loan A facility. Without accounting for the acquisition, a preliminary ratio of debt net of allowed cash to consolidated EBITDA, as defined in our credit agreement for the quarter ended September 30th, 2026, is 1.7x . Accounting for this transaction, which we expect to close in the current quarter, would bring the preliminary September 30th, net debt ratio to between 2.2 and 2.3x on a pro forma basis, well within our 2-3x target range. We continue to expect strong cash generation from the combined company.
Turning to valuation, the purchase price represents an implied transaction multiple of approximately 11x our expectation of Agile Defense's 2027 adjusted EBITDA. When accounting for the net present value of anticipated tax basis step-up associated with the transaction, as well as the potential earn-out, the effective multiple is also approximately 11x 2027 adjusted EBITDA. We believe the valuation is supported by the highly visible near-term growth outlook underpinned by recent new business success, the quality of the customer relationships, the depth of the cleared workforce, the differentiated technology capabilities, and the strategic positioning within the defense and national security markets. More specifically, for the 9 months ended September 30th, 2026, Agile's book to bill was 3.1x , which supports our expectation of double-digit organic growth in 2027 for this business.
From an income statement perspective, Agile's calendar year 2027 revenue is expected to be roughly $450 million, and their adjusted EBITDA margin is expected to be within our target range of 12%-15%, which is a testament to the high-value work they provide, as well as the portfolio of largely fixed price and time and materials contracts. We expect the transaction to be immediately accretive to adjusted diluted earnings per share following closing and approximately neutral to our fiscal year 2027 GAAP earnings per share. Beyond the immediate financial contribution of the business, we believe there is significant potential to accelerate our organic growth. We have been messaging publicly for several quarters our continued intent to grow and expand in the national security space. While we have had some important organic wins, we have also been focused on this acquisition investment thesis.
We believe the combination of the two companies will enhance our position in the national security space and result in a more robust growth outlook than either company alone. While the primary thesis is to accelerate growth with national security customers, we also plan to pursue opportunities to leverage Agile Defense's technology capabilities with Maximus' longstanding civilian customer relationships. Looking ahead, we plan to continue evaluating strategic opportunities that align with our long-term growth objectives while maintaining the disciplined approach to capital allocation that has guided us for many years. Consistent with our capital allocation framework, we remain committed to returning capital to shareholders through opportunistic share repurchases. As we have discussed previously, we evaluate repurchases through a disciplined lens that considers valuation, expected returns, leverage, available liquidity, and alternative uses of capital.
While this acquisition represents an important strategic investment, our resulting debt ratio remains near the low end of our target range as we continue to expect strong cash generation in the coming quarters. We therefore believe we will have the capacity to actively repurchase shares following closing, which we expect will be our capital allocation priority for the remainder of fiscal year 2027. Subject to market conditions and our established capital allocation criteria, we currently anticipate deploying $200 million in share repurchases across the remainder of fiscal year 2027. Finally, echoing Bruce's comments, I want to extend a warm welcome to our soon-to-be colleagues from Agile Defense to the Maximus team. We are excited about the expertise, innovation, and mission focus they will bring to the organization, and we look forward to working together as we enter this next chapter of service to our government customers.
With that, we will open the line for questions. Operator?
Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For a participant choosing speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Will Gildea with CJS Securities. Please proceed.
Hey, good morning and congratulations on the deal.
Thanks, Will. Good morning.
As investors try to get their arms around the business, can you give us any color on what makes Agile tick from your perspective and how the business has performed recently?
Let me begin by just talking about what makes it tick. I hit a few of these comments in my prepared remarks, but something I might want to offer in terms of even further visibility to the kind of business it is. I'll talk about a couple of the specific contract areas and customers that they serve. Just this summer, Agile was awarded a $100 million OTA agreement supporting NORAD and USNORTHCOM that focuses on helping operational users actually adopt and deploy AI within mission environments. It means that Agile is not just simply building technology and handing it over. They embed engineers, and I talked in my prepared remarks about forward-deployed engineers and trainers directly alongside users that help integrate AI into day-to-day mission workflows.
That, to me and to us, reflects the higher value role that demonstrates the trust that they've established with some of the Department of War's most important organizations. Another example that we like to talk about is the work that they do and the relationship they have with the Chief Digital and Artificial Intelligence Office, CDAO. The CDAO has really become the focal point for many of the Department of War's most important AI initiatives, and Agile is participating across multiple programs that support AI adoption, data readiness, and operational deployment. That positioning is really difficult to replicate and gives us a lot of confidence that the company is really participating in areas where they're likely to receive sustained investment over time, which is the case. In fact, if you look at the CDAO's budget over time, it's increased really materially.
But what excites us most about Agile is that they appear to be moving beyond being viewed as a traditional government services provider. When we look at the complex programs that they support, the OTA agreements that they've received, you see them helping the Department of War operationalize AI, supporting primary mission of the organizations, participating in some of the earliest efforts around agentic AI. And that makes us really believe that Agile has built a reputation as a trusted implementation partner for the DoW for some of their highest priority technology initiatives. And that's a position that we believe creates really meaningful opportunities for Maximus for years to come. I hope that additional color helps a little bit, and I'm going to flip it over to David here.
Yeah, just as it relates to recent performance, what we're really most excited about is their strong new business success in year-to-date 2026. I mentioned a 3.1 book-to-bill for the nine months ending September 30th, which that really fuels our double-digit organic growth expectation in 2027.
All right, great. That's very helpful. Thank you. And just what does growth look like? I understand double-digit growth is the outlook for 2027, but what does growth look like at Agile over the past few years, both organic and including acquisitions?
Yeah. I will point out that Agile combined with a company called IntelliBridge in January of 2025. So it's been almost two years now, and that has been integrated. So there is a component of acquisitive growth in the historical period. Again, we're really focused and excited about the forward growth potential given the recent new business success. So those companies have really come together and have built a really strong growth engine.
Great. Thank you. Can you talk more about the makeup of contracts at Agile? What are average performance periods or backlog? Is there any significant contract concentration?
Yeah, very low contract concentration, which is great. The largest contract in the portfolio is a little over $50 million of annual revenue. The top 10 contracts are just short of half of all revenue. So, really good diversity across Department of War, Department of Homeland Security. So great portfolio there.
Yep. Thanks. Can you add some more color how we should think about revenue synergies from the deal? Specifically, does Agile bring relationships with agencies Maximus doesn't serve today, and are there contract vehicles or positioning on the other side that open new work from legacy Maximus?
Yeah, absolutely. I'll begin there. I mentioned in my prepared remarks that they have a lot of work that they do, obviously at the DISA level, the CDIO level, where historically we may have done work at OSD. We have some great contracts in the Air Force. They have a great presence in the US Army. So there's some real nice overlaps in terms of the support that they provide for the various branches, but also some of the work they do at the top level ends up supporting all the combatant commands across all 11 combatant commands. So it's a really excellent and broad footprint of customers that they bring. Even within the Department of Homeland Security, we have an established presence in the TSA, and they do work for USCIS. So, again, very complementary.
From a vehicle perspective, in terms of what Maximus brings, there are some specific contracts when I think about the Navy Cyber MAC contract or I think about NASA SEWP. We bring those to the table and could really enable the combined companies to bid on more opportunities in those vehicles. Furthermore, often FEDSIM contracts are very attractive. Yes, they require a significant investment to win, but they can be very attractive contracts. I think that as we look, without naming specific opportunities, obviously, as we look out into the pipeline, there are some FEDSIM opportunities that I think we will be much better positioned to compete for. Most importantly, we have been investing in and building this kind of non-traditional sales motion, is what we refer to it internally, and I want to credit our CDIO, Derrick Pledger, and our CTO, Mike Raker, for that vernacular.
We have a non-traditional sales motion that we have invested in through things like hackathon capabilities. We have hosted hackathons for NDIA, for Modern Day Marine and so forth. We ourselves have won some small OTAs, but Agile is really further down that road in terms of that established capability to move quickly from kind of concept and idea to delivered code and a working solution and prototype to actually build it out into production environment. The OTA awards that we have mentioned that have contributed to this 3.1 book-to-bill that David mentioned are really evidence of that. So we feel that together, we will really be accelerating our capabilities in terms of that non-traditional sales environment or sales motion. David, anything you want to add?
I would just say we have been talking about our strategy and intent to grow organically into Department of War and Department of Homeland Security, and we have had some recent organic success in the TSA and Air Force, for example. So really, this continues that strategy. We think it can really accelerate our organic growth as it brings strong customer relationships, past performance qualifications, and all the rest we have talked about.
Yep. Great. Are there any cost synergies you are targeting? I know you think about acquisitions more from a revenue synergies perspective. Are there any notable cost synergies you are looking to achieve?
Not that we've quantified. There are some natural cost synergies that come with any combination, but really the primary intent of this is to drive growth together. That's where we're most focused.
Great, thanks. I think you disclosed that net leverage is expected to be between 2.2 and 2.3x EBITDA on a pro forma basis when this deal closes. What do you expect leverage to peak at, considering the working capital seasonality Maximus has had over the past few years and considering the $200 million in share repurchases?
Yeah. Next month when we provide guidance, we'll have more specific free cash flow guidance for our fiscal year 2027. But I will say that we expect that net leverage ratio to decline over the remaining quarters of fiscal year 2027, even with the anticipated $200 million of share repurchases that I mentioned. In the absence of any other repurchasing or M&A, we'd expect the net debt to EBITDA ratio to finish fiscal year 2027 below two times.
Great, thank you. Just wanted to switch gears here. Have there been any updates on the VA contract?
Sure, Will, it's Bruce. I will give you a few updates. The VA recently released their draft RFP, as folks may be aware, for the MDE rebid, and we are in the process of digesting it. From a timing perspective, the VA has affirmed that they intend to complete the procurement cycle such that the new contract will begin on July 1st of 2027. So that means that the award should be made before then, and we expect to see a 6-month extension to our current work. VA solicited feedback on the draft RFP, which we believe is due next week, so the teams are in that process. Some preliminary thoughts on draft RFP from our perspective include the following.
First, we appreciate that the VBA's suggested workshare allocation approach, which we believe will benefit vendors who have demonstrated capacity and consistently met quality standards in delivery, is reflected in this draft solicitation. We appreciate also the VBA's acknowledgment of the need to demonstrate capacity as a readiness condition to commencing operations in any particular region, and I will say a little bit more about that in a moment. We also appreciate that the VBA is not limiting the number of regions in which a vendor can operate, nor capping the total potential workshare that a vendor can get. The VBA also indicated that they intend to award no fewer than 2 and no more than 4 vendors in each of the 6 regions that comprise the contract. So a few more words on the capacity point I made a moment ago.
The VBA has established, and I am going to throw some acronyms out here, so bear with me. They have established what are effectively minimum capacity requirements, referred to as the continuity workload requirement, or CWR, for each region. They now call the regions service groups. They have stipulated that any contractor receiving an award must be able to demonstrate its ability to begin accepting and performing the CWR volumes in a service group no later than 30 days following award. So you have to be up and running and ready and demonstrating that capacity very quickly. Taking all this together, we view the draft RFP favorably, and we will continue to focus on quality delivery at meaningful volumes across the regions that we support, and also bringing online progressively the investments in technology that we have been making to support veterans and our VBA customer.
Finally, I would say that we see the draft RFP as being consistent with the broader VBA stated goals, which we have heard in industry events and so forth, and from VA leadership of further improving the veteran experience. So we believe that the investments that we have made in anticipation of the rebid and new software, streamlining workflows, and simplifying the veteran and provider experiences are very consistent with that goal. So to the degree that we have more to share, we will do so during our year-end earnings call next month. Hope that helps.
That is very helpful, and then just one more follow-up on that. Was there any language about the incentive program in the draft RFP? If not, when do you expect to know more about or when should we expect the timing for you to know more about a potential return in incentives?
Yeah, it's framed a little bit differently in the draft RFP in that there are service level and performance standards that you have to meet, otherwise you could face disincentives, and that's fair. That's performance-based contracting and something we're super comfortable with, and we do across the majority of our portfolio. As it relates to the opportunity to expand your business, there is a mechanism within the draft RFP, and we'll see if it's sustained in the final RFP, whereby work share is initially allocated in each service group on an equal basis. Then there's an ongoing competition among the vendors that have been awarded the service group. Like I said, that could be between two or four vendors. They divide, and sorry to get a little nerdy on this, but they divide the service group award potential in sevenths.
So if you've got only a couple vendors participating, and they end up getting ranked in terms of their performance and the timeliness of their delivery and so on and so forth, there's certain quality standards that have to be met. But there's a ranking process, and it's not clear yet how periodically that process will be applied, but you could imagine it being done maybe on a six-month or annual basis, whereby the vendors in each service group get ranked, and then they get awarded additional volumes based on the ranking. If you download the draft RFP, you can understand the algebra that goes into doing that.
But we see that as the VA's response here to say, "Hey, look, if you're investing in capacity and you can deliver high volumes at a high quality on a consistent basis, you'll be rewarded with greater volumes and have an opportunity to improve the economics of the program." So very consistent with what they've been saying, and honestly, just super aligned with the Maximus pay-for-performance model of delivery.
Okay. That is great color. That's all for me. Thank you so much.
Great. Well, thank you. Operator, back to you.
Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.