UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended March 31, 2016
 
Commission File Number: 1-12997
 
MAXIMUS, INC.
(Exact name of registrant as specified in its charter)
 
Virginia
 
54-1000588
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
1891 Metro Center Drive
Reston, Virginia
 
20190
(Address of principal executive offices)
 
(Zip Code)
 
(703) 251-8500
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ý No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ý No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer x
 
Accelerated filer o
 
 
 
Non-accelerated filer o
 
Smaller reporting company o
(Do not check if smaller reporting company)
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No ý
 
As of May 2, 2016 there were 64,897,143 shares of the registrant’s common stock (no par value) outstanding.
 




MAXIMUS, Inc.
Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 2016
INDEX
PART I. FINANCIAL INFORMATION
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
 
 
Item 1.
 
 
 
 
 
Item 1A.
 
 
 
 
 
Item 6.
 
 
 
 
 
 
 
 
 
 
 
 
 




Throughout this Quarterly Report on Form 10-Q, the terms “Company,” “we,” “us,” “our” and “MAXIMUS” refer to MAXIMUS, Inc. and its subsidiaries.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Included in this Quarterly Report on Form 10-Q are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates, forecasts and projections about us, the industry in which we operate and other matters, as well as management’s beliefs and assumptions and other statements that are not historical facts. Words such as “anticipate,” “believe,” “could,” “expect,” “estimate,” “intend,” “may,” “opportunity,” “plan,” “potential,” “project,” “should,” “will” and similar expressions are intended to identify forward-looking statements and convey uncertainty of future events or outcomes. These statements are not guarantees and involve risks, uncertainties and assumptions that are difficult to predict. Actual outcomes and results may differ materially from such forward-looking statements due to a number of factors, including without limitation:
a failure to meet performance requirements in our contracts, which might lead to contract termination and liquidated damages; 
the effects of future legislative or government budgetary and spending changes; 
difficulties in integrating acquired businesses; 
the outcome of reviews or audits, which might result in financial penalties and reduce our ability to respond to invitations for new work; 
a failure to comply with laws governing our business, which might result in the Company being subject to fines, penalties and other sanctions; 
our failure to successfully bid for and accurately price contracts to generate our desired profit; 
our ability to maintain relationships with key government entities from whom a substantial portion of our revenue is derived; 
the ability of government customers to terminate contracts on short notice, with or without cause; 
our ability to manage capital investments and start-up costs incurred before receiving related contract payments; 
our ability to maintain technology systems and otherwise protect confidential or protected information; 
the costs and outcome of litigation; 
matters related to business we have disposed of or divested; and 
other factors set forth in Exhibit 99.1, under the caption "Special Considerations and Risk Factors," in our Annual Report on Form 10-K for the year ended September 30, 2015, which was filed with the Securities and Exchange Commission on November 16, 2015.
As a result of these and other factors, our past financial performance should not be relied on as an indication of future performance. Additionally, we caution investors not to place undue reliance on any forward-looking statements as these statements speak only as of the date when made. Except as otherwise required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether resulting from new information, future events or otherwise.




PART I.  FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements.
MAXIMUS, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(Unaudited)
 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2016
 
2015
 
2016
 
2015
Revenue
$
606,453

 
$
481,794

 
$
1,163,175

 
$
948,837

Cost of revenue
458,786

 
357,449

 
905,293

 
705,225

Gross profit
147,667

 
124,345

 
257,882

 
243,612

Selling, general and administrative expenses
65,976

 
59,392

 
130,210

 
111,353

Amortization of intangible assets
3,262

 
1,432

 
6,411

 
2,907

Acquisition-related expenses
529

 
1,514

 
575

 
2,114

Operating income
77,900

 
62,007

 
120,686

 
127,238

Interest expense
1,273

 

 
2,262

 

Other income, net
2,209

 
219

 
3,340

 
1,120

Income before income taxes
78,836

 
62,226

 
121,764

 
128,358

Provision for income taxes
29,495

 
23,198

 
45,541

 
46,980

Net income
49,341

 
39,028

 
76,223

 
81,378

Income attributable to noncontrolling interests
556

 
220

 
829

 
709

Net income attributable to MAXIMUS
$
48,785

 
$
38,808

 
$
75,394

 
$
80,669

Basic earnings per share attributable to MAXIMUS
$
0.74

 
$
0.59

 
$
1.14

 
$
1.22

Diluted earnings per share attributable to MAXIMUS
$
0.74

 
$
0.58

 
$
1.14

 
$
1.20

Dividends paid per share
$
0.045

 
$
0.045

 
$
0.09

 
$
0.09

Weighted average shares outstanding:
 

 
 

 
 

 
 

Basic
65,760

 
65,862

 
65,872

 
65,899

Diluted
66,079

 
66,987

 
66,196

 
66,947

See notes to unaudited consolidated financial statements.

1



MAXIMUS, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
(Unaudited)
 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2016
 
2015
 
2016
 
2015
Net income
$
49,341

 
$
39,028

 
$
76,223

 
$
81,378

Foreign currency translation adjustments
(466
)
 
(10,553
)
 
(2,625
)
 
(21,033
)
Interest rate hedge, net of income taxes of $21, $—, $(4) and $—
(31
)
 

 
6

 

Comprehensive income
48,844

 
28,475

 
73,604

 
60,345

Comprehensive income attributable to noncontrolling interests
556

 
220

 
829

 
709

Comprehensive income attributable to MAXIMUS
$
48,288

 
$
28,255

 
$
72,775

 
$
59,636

See notes to unaudited consolidated financial statements.
 

2



MAXIMUS, Inc.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
 
 
March 31,
2016
 
September 30,
2015
 
(unaudited)
 
 
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
60,783

 
$
74,672

Accounts receivable — billed and billable, net of reserves of $5,080 and $3,385
433,228

 
396,177

Accounts receivable — unbilled
35,777

 
30,929

Income taxes receivable
21,124

 
7,310

Prepaid expenses and other current assets
49,351

 
52,819

Total current assets
600,263

 
561,907

Property and equipment, net
137,493

 
137,830

Capitalized software, net
31,033

 
32,483

Goodwill
401,152

 
376,302

Intangible assets, net
117,732

 
102,358

Deferred contract costs, net
17,782

 
19,126

Deferred compensation plan assets
21,519

 
19,310

Deferred income taxes
5,204

 
11,058

Other assets
10,635

 
11,184

Total assets
$
1,342,813

 
$
1,271,558

LIABILITIES AND SHAREHOLDERS’ EQUITY
 

 
 

Current liabilities:
 

 
 

Accounts payable and accrued liabilities
$
135,704

 
$
155,411

Accrued compensation and benefits
74,975

 
99,700

Deferred revenue
80,429

 
77,642

Income taxes payable
2,577

 
11,709

Long-term debt, current portion
329

 
356

Other liabilities
13,343

 
11,562

Total current liabilities
307,357

 
356,380

Deferred revenue, less current portion
47,873

 
52,954

Deferred income taxes
7,347

 
6,546

Long-term debt
286,017

 
210,618

Deferred compensation plan liabilities, less current portion
21,575

 
20,635

Other liabilities
9,203

 
8,726

Total liabilities
679,372

 
655,859

Shareholders’ equity:
 

 
 

Common stock, no par value; 100,000 shares authorized; 64,906 and 65,437 shares issued and outstanding at March 31, 2016 and September 30, 2015, at stated amount, respectively
455,441

 
446,132

Accumulated other comprehensive income/(loss)
(24,984
)
 
(22,365
)
Retained earnings
228,834

 
188,611

Total MAXIMUS shareholders’ equity
659,291

 
612,378

Noncontrolling interests
4,150

 
3,321

Total equity
663,441

 
615,699

Total liabilities and equity
$
1,342,813

 
$
1,271,558

 
See notes to unaudited consolidated financial statements.

3



MAXIMUS, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
 
Six Months Ended March 31,
 
2016
 
2015
Cash flows from operating activities:
 

 
 

Net income
$
76,223

 
$
81,378

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation and amortization of property, equipment and capitalized software
25,859

 
23,706

Amortization of intangible assets
6,411

 
2,907

Deferred income taxes
(327
)
 
(10,134
)
Stock compensation expense
9,151

 
8,436

Change in assets and liabilities:
 

 
 

Accounts receivable — billed and billable
(35,051
)
 
(80,883
)
Accounts receivable — unbilled
(4,851
)
 
(2,311
)
Prepaid expenses and other current assets
5,443

 
(6,043
)
Deferred contract costs
810

 
(7,105
)
Accounts payable and accrued liabilities
(19,949
)
 
27,274

Accrued compensation and benefits
(14,211
)
 
(12,263
)
Deferred revenue
(2,009
)
 
21,858

Income taxes
(22,597
)
 
19,583

Other assets and liabilities
(3,038
)
 
(4,337
)
Cash provided by operating activities
21,864

 
62,066

Cash flows from investing activities:
 

 
 

Purchases of property and equipment and capitalized software costs
(19,836
)
 
(47,473
)
Acquisition of businesses, net of cash acquired
(41,812
)
 

Other
210

 
282

Cash used in investing activities
(61,438
)
 
(47,191
)
Cash flows from financing activities:
 

 
 

Cash dividends paid
(5,860
)
 
(5,928
)
Repurchases of common stock
(31,138
)
 
(32,616
)
Tax withholding related to RSU vesting
(11,597
)
 
(12,453
)
Expansion of credit facility

 
(1,444
)
Borrowings under credit facility
130,563

 

Repayment of credit facility and other long-term debt
(55,219
)
 
(74
)
Cash provided by/(used in) financing activities
26,749

 
(52,515
)
Effect of exchange rate changes on cash and cash equivalents
(1,064
)
 
(5,937
)
Net decrease in cash and cash equivalents
(13,889
)
 
(43,577
)
Cash and cash equivalents, beginning of period
74,672

 
158,112

Cash and cash equivalents, end of period
$
60,783

 
$
114,535

See notes to unaudited consolidated financial statements.

4



MAXIMUS, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Amounts in thousands)
(Unaudited)
 
 
Common
Shares
Outstanding
 
Common
Stock
 
Accumulated
Other
Comprehensive
Income/(Loss)
 
Retained
Earnings
 
Noncontrolling
Interest
 
Total
Balance at September 30, 2015
65,437

 
$
446,132

 
$
(22,365
)
 
$
188,611

 
$
3,321

 
$
615,699

Net income

 

 

 
75,394

 
829

 
76,223

Foreign currency translation

 

 
(2,625
)
 

 

 
(2,625
)
Interest rate hedge, net of income taxes

 

 
6

 

 

 
6

Cash dividends

 

 

 
(5,860
)
 

 
(5,860
)
Dividends on RSUs

 
172

 

 
(172
)
 

 

Repurchases of common stock
(543
)
 

 

 
(29,139
)
 

 
(29,139
)
Stock compensation expense

 
9,151

 

 

 

 
9,151

Tax withholding related to RSU vesting

 
(14
)
 

 

 

 
(14
)
RSUs vested
12

 

 

 

 

 

Balance at March 31, 2016
64,906

 
$
455,441

 
$
(24,984
)
 
$
228,834

 
$
4,150

 
$
663,441

 
Common
Shares
Outstanding
 
Common
Stock
 
Accumulated
Other
Comprehensive
Income / (Loss)
 
Retained
Earnings
 
Noncontrolling
Interest
 
Total
Balance at September 30, 2014
66,613

 
$
429,857

 
$
230

 
$
125,875

 
$
223

 
$
556,185

Net income

 

 

 
80,669

 
709

 
81,378

Foreign currency translation

 

 
(21,033
)
 

 

 
(21,033
)
Cash dividends

 

 

 
(5,928
)
 

 
(5,928
)
Dividends on RSUs

 
196

 

 
(196
)
 

 

Dividends to noncontrolling interests

 

 

 

 
(75
)
 
(75
)
Repurchases of common stock
(753
)
 

 

 
(30,618
)
 

 
(30,618
)
Stock compensation expense

 
8,436

 

 

 

 
8,436

Tax withholding related to RSU vesting

 
(116
)
 

 

 

 
(116
)
RSUs vested
11

 

 

 

 

 

Balance at March 31, 2015
65,871

 
$
438,373

 
$
(20,803
)
 
$
169,802

 
$
857

 
$
588,229

See notes to unaudited consolidated financial statements.

5



MAXIMUS, Inc.
Notes to Unaudited Consolidated Financial Statements
For the Three and Six Months Ended March 31, 2016 and 2015
In these Notes to Unaudited Consolidated Financial Statements, the terms “Company,” “MAXIMUS,” “us,” “we” or “our” refer to MAXIMUS, Inc. and its subsidiaries.
1. Organization and Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles (GAAP) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the three and six months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the full fiscal year. The balance sheet at September 30, 2015 has been derived from the audited financial statements at that date, but does not include all of the information and notes required by GAAP for complete financial statements.
Certain reclassifications have been made from the prior fiscal year to conform with current presentation. In November 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2015-17, Balance Sheet Classification of Deferred Taxes. This standard reduces the complexity of deferred taxation disclosure by showing deferred income tax balances as noncurrent. We have adopted this standard and have updated our September 30, 2015 balance sheet as if we had adopted this standard at that time. As previously disclosed in our Annual Report on Form 10-K for the year ended September 30, 2015, our balance sheet held $19 million of current deferred tax assets, $0.7 million of noncurrent deferred tax assets included in "Other Assets" and $15.2 million of noncurrent deferred tax liabilities. These balances have been reclassified to record $11.1 million and $6.5 million of noncurrent deferred tax assets and liabilities, respectively.
The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities and the reported amounts of revenue and expenses. On an ongoing basis, we evaluate our estimates including those related to revenue recognition and cost estimation on certain contracts, the realizability of goodwill, and amounts related to income taxes, certain accrued liabilities and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates.
These financial statements should be read in conjunction with the consolidated audited financial statements and the notes thereto at September 30, 2015 and 2014 and for each of the three years ended September 30, 2015, included in our Annual Report on Form 10-K for the year ended September 30, 2015 which was filed with the Securities and Exchange Commission on November 16, 2015.

6



2. Segment Information
The table below provides certain financial information for each of our business segments.
 
 
Three Months Ended March 31,
 
Six Months Ended March 31,
(dollars in thousands)
 
2016
 
% (1)
 
2015
 
% (1)
 
2016
 
% (1)
 
2015
 
% (1)
Revenue:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Health Services
 
$
330,567

 
100
%
 
$
270,918

 
100
%
 
$
622,470

 
100
%
 
$
514,488

 
100
%
U.S. Federal Services
 
150,191

 
100
%
 
99,465

 
100
%
 
295,476

 
100
%
 
207,194

 
100
%
Human Services
 
125,695

 
100
%
 
111,411

 
100
%
 
245,229

 
100
%
 
227,155

 
100
%
Total
 
$
606,453

 
100
%
 
$
481,794

 
100
%
 
$
1,163,175

 
100
%
 
$
948,837

 
100
%
Gross profit:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Health Services
 
$
82,717

 
25.0
%
 
$
69,873

 
25.8
%
 
$
134,689

 
21.6
%
 
$
129,720

 
25.2
%
U.S. Federal Services
 
33,421

 
22.3
%
 
22,014

 
22.1
%
 
61,659

 
20.9
%
 
47,582

 
23.0
%
Human Services
 
31,529

 
25.1
%
 
32,458

 
29.1
%
 
61,534

 
25.1
%
 
66,310

 
29.2
%
Total
 
$
147,667

 
24.3
%
 
$
124,345

 
25.8
%
 
$
257,882

 
22.2
%
 
$
243,612

 
25.7
%
Selling, general and administrative expense:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Health Services
 
$
25,803

 
7.8
%
 
$
28,397

 
10.5
%
 
$
50,967

 
8.2
%
 
$
50,404

 
9.8
%
U.S. Federal Services
 
18,438

 
12.3
%
 
12,377

 
12.4
%
 
35,960

 
12.2
%
 
24,627

 
11.9
%
Human Services
 
21,735

 
17.3
%
 
18,523

 
16.6
%
 
42,633

 
17.4
%
 
36,222

 
15.9
%
Other
 

 
NM

 
95

 
NM

 
650

 
NM

 
100

 
NM

Total
 
$
65,976

 
10.9
%
 
$
59,392

 
12.3
%
 
$
130,210

 
11.2
%
 
$
111,353

 
11.7
%
Operating income:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Health Services
 
$
56,914

 
17.2
%
 
$
41,476

 
15.3
%
 
$
83,722

 
13.4
%
 
$
79,316

 
15.4
%
U.S. Federal Services
 
14,983

 
10.0
%
 
9,637

 
9.7
%
 
25,699

 
8.7
%
 
22,955

 
11.1
%
Human Services
 
9,794

 
7.8
%
 
13,935

 
12.5
%
 
18,901

 
7.7
%
 
30,088

 
13.2
%
Amortization of intangible assets
 
(3,262
)
 
NM

 
(1,432
)
 
NM

 
(6,411
)
 
NM

 
(2,907
)
 
NM

Acquisition-related expenses (2)
 
(529
)
 
NM

 
(1,514
)
 
NM

 
(575
)
 
NM

 
(2,114
)
 
NM

Other
 

 
NM

 
(95
)
 
NM

 
(650
)
 
NM

 
(100
)
 
NM

Total
 
$
77,900

 
12.8
%
 
$
62,007

 
12.9
%
 
$
120,686

 
10.4
%
 
$
127,238

 
13.4
%
(1)    Percentage of respective segment revenue. Percentages not considered meaningful are marked “NM.”
(2) 
Acquisition-related expenses are costs directly incurred from the purchases of Ascend Management Innovations, LLC (Ascend) and Assessments Australia in fiscal year 2016 and the purchase of Acentia in fiscal year 2015, as well as other transaction-related activity. Refer to Note 4 for details regarding the acquisitions.

7



3. Earnings Per Share
The weighted average number of shares outstanding used to compute earnings per share was as follows:
 
 
Three Months Ended March 31,
 
Six Months Ended
March 31,
(shares in thousands)
 
2016
 
2015
 
2016
 
2015
Basic weighted average shares outstanding
 
65,760

 
65,862

 
65,872

 
65,899

Dilutive effect of employee stock options and unvested RSUs
 
319

 
1,125

 
324

 
1,048

Denominator for diluted earnings per share
 
66,079

 
66,987

 
66,196

 
66,947

For the three and six months ended March 31, 2016, 20,000 and 14,000 unvested restricted stock units (RSUs), respectively, have been excluded from the calculation of diluted earnings per share, as the effect of including them would have been anti-dilutive. No unvested RSUs were excluded from the calculation for the same periods in 2015.
4. Business combinations
Ascend Management Innovations, LLC
On February 29, 2016, MAXIMUS Health Services, Inc., a wholly-owned subsidiary of MAXIMUS, Inc. acquired 100% of the share capital of Ascend Management Innovations, LLC ("Ascend"), a provider of independent, specialized health assessments and data management tools to government agencies in the United States. We acquired Ascend to broaden our ability to help our existing government clients deal with the rising demand for long-term care services. The consideration is comprised of $39.3 million in cash and contingent consideration of $5.0 million, which will be earned if specific existing contracts are retained by MAXIMUS prior to December 31, 2017. We have performed a probability weighted assessment of this payment. Future changes in our assessment of this liability will be recorded through the Statement of Operations. This business will be integrated into our Health Services Segment. Management has estimated the fair value of intangible assets acquired as $22.3 million, with an average weighted life of 18 years, and the fair value of goodwill as $16.4 million, which is expected to be deductible for tax purposes. We believe that this goodwill represents the value of the assembled workforce of Ascend, as well as the enhanced knowledge and capabilities resulting from this business combination. At this time, the purchase price is still subject to a working capital evaluation, which may result in a change to the purchase price. We have not yet completed our evaluation of the fair value of all of the assets and liabilities acquired and the fair value of the contingent consideration.

We incurred approximately $0.4 million in acquisition related expenses to Ascend. Ascend contributed approximately $2.1 million of revenue and $0.2 million operating income for the three and six months ended March 31, 2016.

Assessments Australia
On December 15, 2015, MAXIMUS acquired 100% of the share capital of three companies doing business as "Assessments Australia." We acquired Assessments Australia to expand our service offerings within Australia. The consideration is comprised of $2.6 million in cash and contingent consideration of $0.6 million to the sellers of Assessments Australia if contracts with a specific government agency are won by MAXIMUS prior to December 2017. We have performed a probability weighted assessment of this payment. Future changes in our assessment of this liability will be recorded through the Statement of Operations. This business has been integrated into our Human Services Segment. Management has estimated goodwill and intangible assets acquired as $2.6 million and $0.4 million, respectively, but the allocation of the fair value of the consideration has not been completed at this time and the purchase price is still subject to adjustments related to working capital and the finalization of our estimate of the fair value of contingent consideration. We believe that the goodwill represents the value of the assembled workforce of Assessments Australia, as well as the enhanced capabilities which the business will provide us.
    

8



Our provisional allocation of fair value for both the Ascend and Assessments Australia acquisitions, updated through March 31, 2016, are shown below.
 
 
Assets acquired as of respective acquisition dates
(dollars in thousands)
 
Ascend
 
Assessments Australia
Cash, net of cash acquired
 
$
39,273

 
$
2,569

Contingent consideration obligations
 
2,915

 
110

Fair value of consideration
 
$
42,188

 
$
2,679

 
 
 
 
 
Billed and unbilled receivables
 
$
4,069

 
$
507

Other assets
 
251

 
184

Property and equipment
 
660

 
206

Intangible assets
 
22,300

 
365

Total identifiable assets acquired
 
27,280

 
1,262

Accounts payable and other liabilities
 
1,502

 
674

Deferred revenue
 

 
479

Total liabilities assumed
 
1,502

 
1,153

Net identifiable assets acquired
 
25,778

 
109

Goodwill
 
16,410

 
2,570

Net assets acquired
 
$
42,188

 
$
2,679

The valuation of the intangible assets acquired is summarized below:
 
 
Ascend
 
Assessments Australia
(dollars in thousands)
 
Useful life
 
Fair value
 
Useful life
 
Fair value
Customer relationships
 
19 years
 
$
20,400

 
6 years
 
$
365

Trade name
 
1 year
 
1,700

 
 
 

Technology-based intangible assets
 
8 years
 
200

 
 
 

Total intangible assets
 
 
 
$
22,300

 
 
 
$
365

Acentia
On April 1, 2015 (the “acquisition date”), we acquired 100% of the ownership interests of Acentia, LLC (“Acentia”) for cash consideration of $293.5 million.
Acentia provides system modernization, software development, program management and other information technology services and solutions to the U.S. Federal Government. We acquired Acentia, among other reasons, to expand our ability to provide complementary business services and offerings across government markets. The acquired assets and liabilities have been integrated into our U.S. Federal Services Segment.
    

9



We have completed the process of allocating the acquisition price to the fair value of the assets and liabilities of Acentia at the acquisition date. During fiscal year 2016, we have completed our identification of tax assets and liabilities as of the acquisition date.
(dollars in thousands)
 
Updated through September 30, 2015
 
Adjustments
 
Updated through March 31, 2016
Estimated purchase consideration, net of cash acquired
 
$
293,504

 
$

 
$
293,504

Billed and unbilled receivables
 
$
35,333

 
$

 
$
35,333

Other assets
 
5,050

 
(1,959
)
 
3,091

Property and equipment
 
2,140

 

 
2,140

Intangible assets — customer relationships
 
69,900

 

 
69,900

Total identifiable assets acquired
 
112,423

 
(1,959
)
 
110,464

Accounts payable and other liabilities
 
32,426

 
(1,076
)
 
31,350

Deferred revenue
 
251

 

 
251

Capital lease obligations
 
567

 

 
567

Deferred tax liabilities
 

 
6,741

 
6,741

Total liabilities assumed
 
33,244

 
5,665

 
38,909

Net identifiable assets acquired
 
79,179

 
(7,624
)
 
71,555

Goodwill
 
214,325

 
7,624

 
221,949

Net assets acquired
 
$
293,504

 
$

 
$
293,504

The excess of the acquisition date consideration over the fair value of the net assets acquired was recorded as goodwill. We consider the goodwill to represent the value of the assembled workforce of Acentia, as well as the enhanced knowledge and capabilities resulting from this business combination. Approximately $175.0 million of the goodwill balance is anticipated to be deductible for tax purposes.
The intangible assets acquired represent customer relationships. These are being amortized on a straight-line basis over 14 years.
5. Goodwill
Changes in goodwill for the six months ended March 31, 2016 are as follows:
(dollars in thousands)
 
Health Services
 
U.S. Federal Services
 
Human Services
 
Total
Balance as of September 30, 2015
 
$
113,427

 
$
220,524

 
$
42,351

 
$
376,302

Acquisition of Ascend
 
16,410

 

 

 
16,410

Acquisition of Assessments Australia
 

 

 
2,570

 
2,570

Adjustment to goodwill acquired with Acentia
 

 
7,624

 

 
7,624

Foreign currency translation
 
(2,859
)
 

 
1,105

 
(1,754
)
Balance as of March 31, 2016
 
$
126,978

 
$
228,148

 
$
46,026

 
$
401,152


6. Supplemental disclosures
During the six months ended March 31, 2016 and 2015, we made income tax payments of $68.6 million and $37.6 million, respectively.
At March 31, 2016, we held cash and cash equivalents of $60.8 million. Approximately $47 million of these funds are denominated in foreign currencies and held in jurisdictions outside the United States and we have no requirement or intent at this time to transfer the funds to the United States. Declines in the value of foreign currencies with respect to the United States Dollar, notably the Australian Dollar and British Pound, resulted in a decline in net assets of $2.6 million in the six months ended March 31, 2016, including a $1.1 million decline in our cash and cash equivalents balance and a $1.8 million decline in our goodwill balance. These declines were recorded as losses in our Statement of Comprehensive Income.

10



Under a resolution adopted in August 2015, the Board of Directors authorized the repurchase, at management's discretion, of up to an aggregate of $200 million of our common stock. This resolution superseded similar authorizations from November 2011 and June 2014. The resolution also authorizes the use of option exercise proceeds for the repurchase of our common stock. During the six months ended March 31, 2016 and 2015, we repurchased 0.5 million and 0.8 million common shares at a cost of $29.1 million and $30.6 million, respectively. At March 31, 2016, $139.4 million remained available for future stock repurchases.
Our deferred compensation plan assets include $10.6 million invested in mutual funds that have quoted prices in active markets. These assets are recorded at fair value with changes in fair value being recorded in the Statement of Operations.
In fiscal 2016, we granted 0.5 million RSUs to our employees. The majority of these awards will vest ratably over five years.
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and other amounts included within current assets and liabilities that meet the definition of a financial instrument are shown at values equivalent to fair value due to the short-term nature of these items. Our accounts receivable balance includes both amounts invoiced and those where amounts are ready to be invoiced and the funds are collectible within standard invoice terms.
7. Debt
On March 9, 2015, we entered into an amendment to our unsecured credit agreement (the “Credit Agreement”). The Credit Agreement, as amended, provides for a revolving line of credit up to $400 million that may be used for revolving loans, swingline loans (subject to a sublimit of $5 million), and letters of credit (subject to a sublimit of $30 million). The line of credit is available for general corporate purposes, including working capital, capital expenditures and acquisitions. The arrangement will terminate on March 9, 2020, at which time all outstanding borrowings must be repaid.
The Credit Agreement permits us to make borrowings in currencies other than the United States Dollar. At March 31, 2016, we have U.S. Dollar borrowings of $281.5 million and Canadian Dollar borrowings of $3.7 million (4.8 million Canadian Dollars). In addition to borrowings under the Credit Facility, we have an outstanding loan of $0.8 million (1.1 million Canadian Dollars) with the Atlantic Innovation Fund of Canada. There is no interest charge on this loan. The Atlantic Innovation Fund loan is repayable over 25 remaining quarterly installments.
At March 31, 2016, we held three letters of credit under the Credit Agreement totaling $0.7 million. Each of these letters of credit may be called by vendors in the event that the Company defaults under the terms of a contract, the probability of which we believe is remote. In addition, two letters of credit totaling $3.0 million, secured with restricted cash balances, are held with another financial institution to cover similar obligations to customers.
The Credit Agreement requires us to comply with certain financial covenants and other covenants including a maximum total leverage ratio and a minimum fixed charge coverage ratio. We were in compliance with all covenants as of March 31, 2016. Our obligations under the Credit Agreement are guaranteed by our material domestic subsidiaries of the Company. The Credit Facility is currently unsecured. In the event that our total leverage ratio, as defined in the Credit Agreement, exceeds 2.5:1.0, the Credit Agreement will become secured by the assets of the parent company and certain of its subsidiaries. There are no restrictions on our dividend payments if our leverage ratio is less than 2.5:1.0. At March 31, 2016, our total leverage ratio was less than 1.0:1.0.
During the six months ended March 31, 2016, we made interest payments of $1.7 million.

11



8. Recent accounting pronouncements
In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. This new standard will change the manner in which we evaluate revenue recognition for all contracts with customers, although the effect of the changes on revenue recognition will vary from contract to contract. We will adopt this standard during our 2019 fiscal year. The standard permits a retrospective or cumulative effect transition method. We anticipate that we will adopt the new standard using the retrospective method. We are continuing to evaluate the likely effects on our business.
In September 2015, the FASB issued ASU No. 2015-16, Business Combinations, Simplifying the Accounting for Measurement-Period Adjustments. The new standard eliminates the requirement that an acquirer in a business combination account for measurement-period adjustments retrospectively. This standard would be effective during our 2017 fiscal year. We have elected to early adopt this standard in our current fiscal year.
In February 2016, the FASB issued ASU No. 2016-02, Leases. The new standard will change the manner in which we will present our leasing arrangements. This standard would be effective during our 2020 fiscal year, although early adoption is permitted. We are evaluating the likely effects on our business.
9. Subsequent event
On April 8, 2016, our Board of Directors declared a quarterly cash dividend of $0.045 for each share of our common stock outstanding. The dividend is payable on May 31, 2016 to shareholders of record on May 13, 2016.

12



Item 2.                   Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of financial condition and results of operations is provided to enhance the understanding of, and should be read in conjunction with, our Consolidated Financial Statements and related Notes included both herein and in our Annual Report on Form 10-K for the year ended September 30, 2015, which was filed with the Securities and Exchange Commission on November 16, 2015.
Business Overview
We provide business process services (BPS) to government health and human services agencies under our mission of Helping Government Serve the People®. We are one of the largest pure-play health and human services BPS providers to governments in the United States, the United Kingdom, Australia, Canada, Saudi Arabia and New Zealand. We use our experience, business process management expertise and advanced technological solutions to help government agencies run efficient and cost-effective programs, improve program accountability and outcomes, and enhance the quality of services provided to program beneficiaries.
Over the past five years, our business has grown significantly. We believe this growth has been driven by economic and demographic factors, such as aging populations and increased demand for health and human services and the need for governments to operate programs effectively and efficiently. This growth has been driven by reform efforts in the United States, including the Affordable Care Act (ACA), as well as internationally with various programs in the United Kingdom and Australia.
We believe that governments will continue to seek opportunities to enhance existing processes or address new challenges using companies such as MAXIMUS. We believe that a combination of our innovative solutions, deep subject matter expertise, stringent adherence to our Standards of Business Conduct and Ethics, robust financial performance and global experience gives existing and future customers the confidence that MAXIMUS can reliably operate their high-profile public health and human services programs.
We have completed four acquisitions since March 2015:
In April 2015, we acquired 100% of Acentia, LLC (Acentia), a provider of services to the U.S. Federal Government. This business has been integrated into our U.S. Federal Services Segment.
In April 2015, we acquired 70% of Remploy, a business providing services to the United Kingdom government. This business has been integrated into our Human Services Segment.
In December 2015, we acquired 100% of the share capital of three companies doing business as "Assessments Australia." This business has been integrated into our Human Services Segment.
In February 2016, we acquired 100% of the share capital of Ascend Management Innovations, LLC (Ascend), which has been integrated into our Health Services Segment.
We believe that all four of these acquisitions will allow us to expand our service offerings.
Financial Overview
Our results for the three and six months ended March 31, 2016 have been driven by the following:
Our acquisitions, notably Acentia and Remploy, which have increased revenue, profit and intangible asset amortization;
Our Health Assessment and Advisory Services (HAAS) contract in the United Kingdom, which commenced in fiscal year 2015 and, after experiencing difficulties during the ramp-up phase of the contract, has attained profitability;
The timing of a single contract amendment in the Health Services Segment where we had operated without a contract for several months; and
The detrimental effect caused by the strength of the United States Dollar in comparison to the other currencies we utilize.


13



Results of Operations
Consolidated
The following table sets forth, for the periods indicated, selected statements of operations data:
 
 
Three Months Ended March 31,
 
Six Months Ended March 31,
(dollars in thousands, except per share data)
 
2016
 
2015
 
2016
 
2015
Revenue
 
$
606,453

 
$
481,794

 
$
1,163,175

 
$
948,837

Cost of revenue
 
458,786

 
357,449

 
905,293

 
705,225

Gross profit
 
147,667

 
124,345

 
257,882

 
243,612

Gross profit percentage
 
24.3
%
 
25.8
%
 
22.2
%
 
25.7
%
Selling, general and administrative expenses
 
65,976

 
59,392

 
130,210

 
111,353

Selling, general and administrative expense as a percentage of revenue
 
10.9
%
 
12.3
%
 
11.2
%
 
11.7
%
Amortization of intangible assets
 
3,262

 
1,432

 
6,411

 
2,907

Acquisition-related expenses
 
529

 
1,514

 
575

 
2,114

Operating income
 
77,900

 
62,007

 
120,686

 
127,238

Operating margin
 
12.8
%
 
12.9
%
 
10.4
%
 
13.4
%
Interest expense
 
1,273

 

 
2,262

 

Other income, net
 
2,209

 
219

 
3,340

 
1,120

Income before income taxes
 
78,836

 
62,226

 
121,764

 
128,358

Provision for income taxes
 
29,495

 
23,198

 
45,541

 
46,980

Effective tax rate
 
37.4
%
 
37.3
%
 
37.4
%
 
36.6
%
Net income
 
49,341

 
39,028

 
76,223

 
81,378

Income attributable to noncontrolling interests
 
556

 
220

 
829

 
709

Net income attributable to MAXIMUS
 
$
48,785

 
$
38,808

 
$
75,394

 
$
80,669

Basic earnings per share attributable to MAXIMUS
 
$
0.74

 
$
0.59

 
$
1.14

 
$
1.22

Diluted earnings per share attributable to MAXIMUS
 
$
0.74

 
$
0.58

 
$
1.14

 
$
1.20

As our business segments have different factors driving revenue growth and profitability, the sections that follow cover these segments in greater detail.
Changes in revenue, cost of revenue and gross profit for the three and six months ended March 31, 2016 and 2015 are summarized below, respectively.
 
 
Revenue
 
Cost of Revenue
 
Gross Profit
 (dollars in thousands)
 
Dollars
 
Percentage change
 
Dollars
 
Percentage change
 
Dollars
 
Percentage change
Balance for the three months ended March 31, 2015
 
$
481,794

 
 

 
$
357,449

 
 

 
$
124,345

 
 

Organic growth
 
62,510

 
13.0
 %
 
55,554

 
15.5
 %
 
6,956

 
5.6
 %
Acquired growth
 
72,775

 
15.1
 %
 
54,927

 
15.4
 %
 
17,848

 
14.4
 %
Currency effect compared to the prior period
 
(10,626
)
 
(2.2
)%
 
(9,144
)
 
(2.6
)%
 
(1,482
)
 
(1.2
)%
Balance for the three months ended March 31, 2016
 
$
606,453

 
25.9
 %
 
$
458,786

 
28.4
 %
 
$
147,667

 
18.8
 %

14



 
 
Revenue
 
Cost of Revenue
 
Gross Profit
(dollars in thousands)
 
Dollars
 
Percentage change
 
Dollars
 
Percentage change
 
Dollars
 
Percentage change
Balance for the six months ended March 31, 2015
 
$
948,837

 
 

 
$
705,225

 
 

 
$
243,612

 
 

Organic growth
 
100,084

 
10.5
 %
 
115,508

 
16.4
 %
 
(15,424
)
 
(6.3
)%
Acquired growth
 
140,050

 
14.8
 %
 
106,025

 
15.0
 %
 
34,025

 
14.0
 %
Currency effect compared to the prior period
 
(25,796
)
 
(2.7
)%
 
(21,465
)
 
(3.0
)%
 
(4,331
)
 
(1.8
)%
Balance for the six months ended March 31, 2016
 
$
1,163,175

 
22.6
 %
 
$
905,293

 
28.4
 %
 
$
257,882

 
5.9
 %
Revenue for the three and six month periods ended March 31, 2016 increased 26% and 23%, respectively, compared to the same periods in fiscal year 2015.
Organic growth was 13% and 11% of this growth, respectively. It was principally driven by contracts in our Health Services Segment. Much of our organic growth is from contracts in the ramp-up phase which causes the gross profit to lag in the initial year of contract performance.
Revenue from acquisitions contributed approximately a 15% increase over the prior year, principally from Acentia.
The detrimental currency effect has been driven by the strength of the United States Dollar against other currencies utilized by our foreign subsidiaries. We have recorded lower revenues where other currencies are utilized than would have been the case if currency rates had remained stable.
Cost of revenue for the three and six month periods ended March 31, 2016 increased 28% compared to the same periods in fiscal year 2015. Cost of revenue consists of direct costs related to labor, subcontractor labor, outside vendors, rent and other direct costs. The majority of costs are labor-related and are typically correlated with revenue. Costs in our Health and Human Services Segments were driven higher by projects in ramp-up, where we incur costs in preparing the contract and do not have the efficiency from a contract running at fully capacity with an experienced workforce.
Gross profit for the three and six month periods ended March 31, 2016 increased 19% and 5.9%, respectively, compared to the same periods in fiscal year 2015. Our gross profit margin for these periods was 24.3% and 22.2%, both decreasing from 25.8% and 25.7% in the prior fiscal year. Profit margins have declined or remained steady in all three segments.
Selling, general and administrative expense (SG&A) for the three and six month periods ended March 31, 2016 increased 11% and 17%, respectively, compared to the same periods in fiscal year 2015. SG&A consists of indirect costs related to general management, marketing and administration. It is primarily composed of labor costs. These costs may be incurred at a segment level, for dedicated resources which are not client-facing, or at a corporate level. Corporate costs are allocated to segments on a consistent, rational basis. Fluctuations in our SG&A are driven by changes in our administrative cost base, which is not directly driven by changes in our revenue. The majority of our increase in costs relate directly to the Acentia and Remploy businesses, whose acquisitions included a necessary increase in the level of administrative expense. These costs have been allocated to the U.S. Federal Services and Human Services Segments as appropriate. In addition, our expenses for the six months ended March 31, 2016 include additional expenses related to our investments in infrastructure, which commenced in fiscal year 2015.

15



As noted above, we have made four acquisitions over the course of the twelve-month period ended March 31, 2016. These acquisitions have driven the following charges in our statements of operations:
We have incurred costs related to the acquisition of these entities; typically legal fees, third-party due diligence and costs related to the valuation of intangible assets. Expenses in 2016 relate principally to Ascend; those in 2015 relate principally to Acentia.
The acquisitions of Acentia and Ascend were funded using our credit facility, which we had previously not utilized to any significant effect. Accordingly, our interest expense has increased year-over-year.
Our acquisition of Acentia included the addition of $69.9 million of intangible assets, which are being amortized over fourteen years. The other acquisitions also generated intangible assets. Our charge related to the amortization of intangible assets has increased by approximately $1.8 million per fiscal quarter.
Our other income is typically provided through interest income on our overseas cash balances, which have declined with the acquisitions of Remploy and Assessments Australia. In the three and six months ended March 31, 2016, we received a short-term benefit from a favorable foreign exchange fluctuation on an inter-company transaction. This transaction has been settled in the third quarter of fiscal year 2016 and future benefits from other income are not expected to be significant.
Our year-to-date effective tax rate for the 2016 fiscal year is 37.4%, an increase over the prior year period. The acquisition of Acentia and our organic growth has resulted in an increasing share of our income being realized in the United States, where we incur higher tax rates than other jurisdictions in which we operate. We anticipate that our full year tax rate will be between 37% and 39%, with a bias towards the lower end of this range.
Health Services Segment
The Health Services Segment provides a variety of business process services, as well as related consulting services for state, provincial and national government programs. These services support programs like Medicaid, the Children's Health Insurance Program and the Affordable Care Act in the U.S.; Health Insurance BC (British Columbia) in Canada; and the Health Assessment Advisory Service (HAAS) and Fit for Work Service in the U.K.
 
 
Three Months Ended March 31,
 
Six Months Ended March 31,
(dollars in thousands)
 
2016
 
2015
 
2016
 
2015
Revenue
 
$
330,567

 
$
270,918

 
$
622,470

 
$
514,488

Cost of revenue
 
247,850

 
201,045

 
487,781

 
384,768

Gross profit
 
82,717

 
69,873

 
134,689

 
129,720

Operating income
 
56,914

 
41,476

 
83,722

 
79,316

Gross profit percentage
 
25.0
%
 
25.8
%
 
21.6
%
 
25.2
%
Operating margin percentage
 
17.2
%
 
15.3
%
 
13.4
%
 
15.4
%
Changes in revenue, cost of revenue and gross profit for the three months ended March 31, 2016 and 2015 are summarized below.
 
 
Revenue
 
Cost of Revenue
 
Gross Profit
 (dollars in thousands)
 
Dollars
 
Percentage change
 
Dollars
 
Percentage change
 
Dollars
 
Percentage change
Balance for respective period in fiscal year 2015
 
$
270,918

 
 

 
$
201,045

 
 

 
$
69,873

 
 

Organic growth
 
63,030

 
23.3
 %
 
50,018

 
24.9
 %
 
13,012

 
18.6
 %
Acquired growth
 
2,090

 
0.8
 %
 
1,614

 
0.8
 %
 
476

 
0.7
 %
Currency effect compared to the prior period
 
(5,471
)
 
(2.0
)%
 
(4,827
)
 
(2.4
)%
 
(644
)
 
(0.9
)%
Balance for respective period in fiscal year 2016
 
$
330,567

 
22.0
 %
 
$
247,850

 
23.3
 %
 
$
82,717

 
18.4
 %

16



Revenue for the three month period ended March 31, 2016 increased by 22% compared to the same period in fiscal year 2015. Cost of revenue increased by 23%, resulting in a decline in the gross profit margin from 26% to 25%.
The principal driver of increased revenue and cost of revenue was the HAAS contract, which commenced in March 2015. As we have previously noted, the ramp-up phase of this contract experienced challenges in the recruitment, retention and productivity of health care professionals, resulting in reduced fees from performance incentives within the contract. During the three month period, we have received contract modifications, resulting in a benefit to revenue and pre-tax income of approximately $6.6 million related to prior periods on this contract.
In the second fiscal quarter, we recorded $8.6 million of revenue for U.S.-based work performed in the first fiscal quarter of the year. We commenced work and incurred costs through December 2015 but could not recognize revenue until a contract amendment was signed. This additional revenue, with only a single quarter of costs, had a beneficial effect on our profit margin.
The United Kingdom Fit For Work contract commenced in fiscal year 2015. This contract has incurred significant costs but anticipated revenue, which was to be driven by increased volumes, has not materialized. Along with our client, we are exploring all options including right-sizing the contract and possible termination. Until this occurs, we have taken steps to mitigate losses through cost management and changes in processes.
Our organic revenue and cost growth has been mitigated through declines in the value of the British Pound and Canadian Dollar against the United States Dollar.
Changes in revenue, cost of revenue and gross profit for the six months ended March 31, 2016 and 2015 are summarized below.
 
 
Revenue
 
Cost of Revenue
 
Gross Profit
(dollars in thousands)
 
Dollars
 
Percentage change
 
Dollars
 
Percentage change
 
Dollars
 
Percentage change
Balance for respective period in fiscal year 2015
 
$
514,488

 
 

 
$
384,768

 
 

 
$
129,720

 
 

Organic growth
 
117,116

 
22.8
 %
 
110,700

 
28.8
 %
 
6,416

 
4.9
 %
Acquired growth
 
2,090

 
0.4
 %
 
1,614

 
0.4
 %
 
476

 
0.4
 %
Currency effect compared to the prior period
 
(11,224
)
 
(2.2
)%
 
(9,301
)
 
(2.4
)%
 
(1,923
)
 
(1.5
)%
Balance for respective period in fiscal year 2016
 
$
622,470

 
21.0
 %
 
$
487,781

 
26.8
 %
 
$
134,689

 
3.8
 %
For the six months ended March 31, 2016, revenue and costs of service have increased by 21% and 27%, respectively, to the comparative period in fiscal year 2015. These increases have been driven by the HAAS contract offset by the detrimental effect of exchange rates.
We expect that a combination of improved operational performance and contract amendments will result in improved profitability for the HAAS contract over the remainder of fiscal year 2016.

17



U.S. Federal Services Segment
The U.S. Federal Services Segment provides business process solutions, system development, software development and program management for various civilian U.S. federal programs.
 
 
Three Months Ended March 31,
 
Six Months Ended March 31,
(dollars in thousands)
 
2016
 
2015
 
2016
 
2015
Revenue
 
$
150,191

 
$
99,465

 
$
295,476

 
$
207,194

Cost of revenue
 
116,770

 
77,451

 
233,817

 
159,612

Gross profit
 
33,421

 
22,014

 
61,659

 
47,582

Operating income
 
14,983

 
9,637

 
25,699

 
22,955

Gross profit percentage
 
22.3
%
 
22.1
%
 
20.9
%
 
23.0
%
Operating margin percentage
 
10.0
%
 
9.7
%
 
8.7
%
 
11.1
%
Changes in revenue, cost of revenue and gross profit for the three months ended March 31, 2016 and 2015 are summarized below.
 
 
Revenue
 
Cost of Revenue
 
Gross Profit
 (dollars in thousands)
 
Dollars
 
Percentage change
 
Dollars
 
Percentage change
 
Dollars
 
Percentage change
Balance for respective period in fiscal year 2015
 
$
99,465

 
 

 
$
77,451

 
 

 
$
22,014

 
 

Organic growth
 
(2,284
)
 
(2.3
)%
 
(1,825
)
 
(2.4
)%
 
(459
)
 
(2.1
)%
Acquired growth
 
53,010

 
53.3
 %
 
41,144

 
53.1
 %
 
11,866

 
53.9
 %
Balance for respective period in fiscal year 2016
 
$
150,191

 
51.0
 %
 
$
116,770

 
50.8
 %
 
$
33,421

 
51.8
 %
Revenue and costs of service for the three month period ended March 31, 2016 increased 51% compared to the same period in fiscal year 2015.
The principal driver of growth was the acquisition of Acentia, which occurred in April 2015.
As anticipated, the closure of a customer contact center in Boise, which had supported the ACA Federal Marketplace, was offset by a new subcontract which commenced in fiscal year 2015.
Changes in revenue, cost of revenue and gross profit for the six months ended March 31, 2016 and 2015 are summarized below.
 
 
Revenue
 
Cost of Revenue
 
Gross Profit
(dollars in thousands)
 
Dollars
 
Percentage change
 
Dollars
 
Percentage change
 
Dollars
 
Percentage change
Balance for respective period in fiscal year 2015
 
$
207,194

 
 

 
$
159,612

 
 

 
$
47,582

 
 

Organic growth
 
(16,005
)
 
(7.7
)%
 
(6,650
)
 
(4.2
)%
 
(9,355
)
 
(19.7
)%
Acquired growth
 
104,287

 
50.3
 %
 
80,855

 
50.7
 %
 
23,432

 
49.2
 %
Balance for respective period in fiscal year 2016
 
$
295,476

 
42.6
 %
 
$
233,817

 
46.5
 %
 
$
61,659

 
29.6
 %
For the six months ended March 31, 2016, revenue and costs of service have increased by 43% and 46%, respectively, to the comparative period in fiscal year 2015. These increases have been driven by the Acentia acquisition and the new federal subcontract, offset by the ACA Federal Marketplace and two contracts which were lost in our appeals and assessments work.

18



Human Services Segment
The Human Services Segment provides national, state and county human services agencies with a variety of business process services and related consulting services for welfare-to-work, child support, higher education and K-12 special education programs. The majority of our revenue in this Segment is earned in foreign jurisdictions.
 
 
Three Months Ended March 31,
 
Six Months Ended March 31,
(dollars in thousands)
 
2016
 
2015
 
2016
 
2015
Revenue
 
$
125,695

 
$
111,411

 
$
245,229

 
$
227,155

Cost of revenue
 
94,166

 
78,953

 
183,695

 
160,845

Gross profit
 
31,529

 
32,458

 
61,534

 
66,310

Operating income
 
9,794

 
13,935

 
18,901

 
30,088

Gross profit percentage
 
25.1
%
 
29.1
%
 
25.1
%
 
29.2
%
Operating margin percentage
 
7.8
%
 
12.5
%
 
7.7
%
 
13.2
%
    
Changes in revenue, cost of revenue and gross profit for the three months ended March 31, 2016 and 2015 are summarized below.
 
 
Revenue
 
Cost of Revenue
 
Gross Profit
 (dollars in thousands)
 
Dollars
 
Percentage change
 
Dollars
 
Percentage change
 
Dollars
 
Percentage change
Balance for respective period in fiscal year 2015
 
$
111,411

 
 

 
$
78,953

 
 

 
$
32,458

 
 

Organic growth
 
1,763

 
1.6
 %
 
7,360

 
9.3
 %
 
(5,597
)
 
(17.2
)%
Acquired growth
 
17,675

 
15.9
 %
 
12,169

 
15.4
 %
 
5,506

 
17.0
 %
Currency effect compared to the prior period
 
(5,154
)
 
(4.6
)%
 
(4,316
)
 
(5.5
)%
 
(838
)
 
(2.6
)%
Balance for respective period in fiscal year 2016
 
$
125,695

 
12.8
 %
 
$
94,166

 
19.3
 %
 
$
31,529

 
(2.9
)%
Revenue for the three month period ended March 31, 2016 increased 13% compared to the same period in fiscal year 2015. Costs of service increased by 19%, resulting in a decline in the gross profit margin.
We have received the benefit of the acquisitions of Remploy and Assessments Australia.
The jobactive contract with the Australian government has commenced, resulting in increased organic revenues, offset by declines in our United Kingdom Work Program. The principal driver of costs is the jobactive contract, which is in its early stages and has reduced our gross profit margin by approximately 300 basis points year-over-year.
This growth has been tempered by foreign exchange rate fluctuations, most of which was caused by our Australian operations.

19



Changes in revenue, cost of revenue and gross profit for the six months ended March 31, 2016 and 2015 are summarized below.    
 
 
Revenue
 
Cost of Revenue
 
Gross Profit
(dollars in thousands)
 
Dollars
 
Percentage change
 
Dollars
 
Percentage change
 
Dollars
 
Percentage change
Balance for respective period in fiscal year 2015
 
$
227,155

 
 

 
$
160,845

 
 

 
$
66,310

 
 

Organic growth
 
(1,027
)
 
(0.5
)%
 
11,458

 
7.1
 %
 
(12,485
)
 
(18.8
)%
Acquired growth
 
33,673

 
14.8
 %
 
23,556