mms-20220331

As filed with the Securities and Exchange Commission on May 5, 2022

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________to__________.

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.)

1600 Tysons Boulevard, McLean, Virginia						22102
(Address of principal executive offices)						(Zip Code)

(703) 251-8500
(Registrant's telephone number, including the area code)
1891 Metro Center Drive, Reston, Virginia 20190
(Former address)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, no par value

MMS

New York Stock Exchange

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

There were 61,412,807 shares of the registrant's Common Stock outstanding as of May 2, 2022.

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Table of Contents to Second Quarter 2022 Form 10-Q


	SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS	3
Part I - Financial Information		4
Item 1.	Financial Statements	4
	Consolidated Statements of Operations	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Balance Sheets	6
	Consolidated Statements of Cash Flows	7
	Consolidated Statements of Changes in Shareholders' Equity	8
	Notes to the Consolidated Financial Statements	9
	1. Organization	9
	2. Significant Accounting Policies	9
	3. Business Segments	10
	4. Revenue Recognition	12
	5. Earnings Per Share	14
	6. Business Combinations	14
	7. Debt	17
	8. Derivatives	18
	9. Fair Value	19
	10. Stock Compensation	19
	11. Accumulated Other Comprehensive Income	19
	12. Stock Repurchases	20
	1 3 . Cash and Cash Equivalents and Restricted Cash	20
	1 4 . Accounts Receivable, Net	20
	1 5 . Property and Equipment, Net	21
	1 6 . Commitments and Contingencies	21
	1 7 . Subsequent Event	21
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	22
	Business Overview	22
	Financial Overview	23
	Results of Operations	23
	Liquidity and Capital Resources	29
	Critical Accounting Policies and Estimates	30
	Non-GAAP and Other Measures	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	32
Part II - Other Information		33
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Mine Safety Disclosures	33
Item 5.	Other Information	33
Item 6.	Exhibits	34
	Signatures	35

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Unless otherwise specified, references in this Quarterly Report on Form 10-Q to "our," "we," "us," "Maximus," the "Company," and "our business" 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 safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as: "anticipate," "intend," "plan," "goal," "seek," "opportunity," "could," "potential," "believe," "project," "estimate," "expect," "forecast," "strategy," "future," "likely," "may," "should," "will," and similar references to future periods.

Forward-looking statements that are not historical facts, including statements about our confidence, strategies and initiatives, and our expectations about revenues, results of operations, profitability, liquidity, market demand, the impact of the coronavirus ("COVID-19") global pandemic and related policy implications, and our recent acquisitions are forward-looking statements that involve risks and uncertainties. These risks could cause our actual results to differ materially from those indicated by such forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:

•a failure to meet performance requirements in our contracts, which might lead to contract termination and actual or liquidated damages;

•our failure to successfully bid for and accurately price contracts to generate our desired profit;

•the effects of future legislative or government budgetary and spending changes;

•the impact of the Biden Administration on federal procurement, federal funding to states' safety-net programs, and the overall decision-making process related to our industry, including our business and customers;

•our ability to manage our growth, including acquired businesses;

•difficulties in integrating or achieving projected revenues, earnings, and other benefits associated with acquired businesses;

•the outcome of reviews or audits, which might result in financial penalties and impair our ability to respond to invitations for new work;

•our ability to manage capital investments and startup costs incurred before receiving related contract payments;

•our ability to manage our debt;

•the extent and impact of the continuation of the global pandemic and the actions taken or to be taken by us, our customers, and the governments or jurisdictions in which we operate in response to COVID-19;

•our ability to maintain technology systems and otherwise protect confidential or protected information;

•our ability to attract and retain executive officers, senior managers, and other qualified personnel to execute our business;

•the ability of government customers to terminate contracts on short notice, with or without cause;

•our ability to maintain relationships with key government entities from whom a substantial portion of our revenue is derived;

•a failure to comply with laws governing our business, which might result in the Company being subject to fines, penalties, suspension, debarment, and other sanctions;

•the costs and outcome of litigation;

•the effects of changes in laws and regulations governing our business, including tax laws, and applicable interpretations and guidance thereunder, or changes in accounting policies, rules, methodologies, and practices, and our ability to estimate the impact of such changes;

•matters related to business we disposed of or divested; and

•other factors set forth in Item 1A, "Risk Factors" of our Annual Report on From 10-K, filed with the Securities and Exchange Commission on November 18, 2021.

Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments, or otherwise.

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PART I - Financial Information

Item 1. Financial Statements

Maximus, Inc.

Consolidated Statements of Operations

(Unaudited)


	For the Three Months Ended				For the Six Months Ended
	March 31, 2022		March 31, 2021		March 31, 2022		March 31, 2021
	(in thousands, except per share amounts)
Revenue	$	1,177,326	$	959,280	$	2,328,202	$	1,904,834
Cost of revenue	948,875		728,622		1,871,596		1,468,121
Gross profit	228,451		230,658		456,606		436,713
Selling, general, and administrative expenses	130,307		112,402		254,528		224,369
Amortization of intangible assets	22,856		5,070		45,261		11,586
Operating income	75,288		113,186		156,817		200,758
Interest expense	(9,438)		(756)		(19,076)		(962)
Other income/(expense), net	715		(520)		404		(1,295)
Income before income taxes	66,565		111,910		138,145		198,501
Provision for income taxes	16,469		31,296		34,719		53,810
Net income	$	50,096	$	80,614	$	103,426	$	144,691

Earnings per share:
Basic	$	0.81	$	1.30	$	1.66	$	2.33
Diluted	$	0.80	$	1.29	$	1.66	$	2.33
Weighted average shares outstanding:
Basic	62,227		62,026		62,256		62,022
Diluted	62,381		62,294		62,409		62,212

Dividends declared per share	$	0.28	$	0.28	$	0.56	$	0.56

See accompanying notes to unaudited consolidated financial statements.

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Maximus, Inc.

Consolidated Statements of Comprehensive Income

(Unaudited)


	For the Three Months Ended				For the Six Months Ended
	March 31, 2022		March 31, 2021		March 31, 2022		March 31, 2021
	(in thousands)
Net income	$	50,096	$	80,614	$	103,426	$	144,691
Other comprehensive income, net of tax:
Foreign currency translation adjustments	(23)		770		436		7,693
Net gains on cash flow hedge, net of tax	10,689		—		13,374		—
Other comprehensive income	10,666		770		13,810		7,693
Comprehensive income	$	60,762	$	81,384	$	117,236	$	152,384

See accompanying notes to unaudited consolidated financial statements.

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Maximus, Inc.

Consolidated Balance Sheets


	March 31, 2022		September 30, 2021
	(unaudited)
	(in thousands)
Assets:
Cash and cash equivalents	$	92,638	$	135,061
Accounts receivable, net	885,685		834,819
Income taxes receivable	14,757		5,413
Prepaid expenses and other current assets	97,420		104,201
Total current assets	1,090,500		1,079,494
Property and equipment, net	57,945		62,627
Capitalized software, net	42,877		42,868
Operating lease right-of-use assets	160,183		179,349
Goodwill	1,780,370		1,774,406
Intangible assets, net	851,564		879,168
Deferred contract costs, net	42,813		36,486
Deferred compensation plan assets	44,773		46,738
Deferred income taxes	2,635		990
Other assets	34,036		16,839
Total assets	$	4,107,696	$	4,118,965
Liabilities and Shareholders' Equity:
Liabilities:
Accounts payable and accrued liabilities	$	302,912	$	305,565
Accrued compensation and benefits	142,512		186,809
Deferred revenue, current portion	122,070		98,588
Income taxes payable	3,883		6,782
Long-term debt, current portion	59,911		80,555
Operating lease liabilities, current portion	70,731		76,077
Other current liabilities	51,247		35,057
Total current liabilities	753,266		789,433
Deferred revenue, non-current portion	30,429		35,932
Deferred income taxes	198,848		194,638
Long-term debt, non-current portion	1,387,386		1,429,137
Deferred compensation plan liabilities, non-current portion	44,923		47,405
Operating lease liabilities, non-current portion	106,670		121,771
Other liabilities	31,958		20,320
Total liabilities	2,553,480		2,638,636
Commitments and contingencies (Note 16)
Shareholders' equity:
Common stock, no par value; 100,000 shares authorized; 61,610 and 61,954 shares issued and outstanding as of March 31, 2022 and September 30, 2021, respectively (shares in thousands)	550,228		532,411
Accumulated other comprehensive loss	(26,098)		(39,908)
Retained earnings	1,030,086		987,826
Total shareholders' equity	1,554,216		1,480,329
Total liabilities and shareholders' equity	$	4,107,696	$	4,118,965

See accompanying notes to unaudited consolidated financial statements.

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Maximus, Inc.

Consolidated Statements of Cash Flows

(Unaudited)


	For the Six Months Ended
	March 31, 2022		March 31, 2021
	(in thousands)
Cash flows from operating activities:
Net income	$	103,426	$	144,691
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation and amortization of property, equipment and capitalized software	21,199		22,835
Amortization of intangible assets	45,261		11,586
Amortization of debt issuance costs and debt discount	1,297		—
Deferred income taxes	(3,318)		7,951
Stock compensation expense	15,052		13,479
Change in assets and liabilities, net of effects of business combinations:
Accounts receivable	(49,064)		70,217
Prepaid expenses and other current assets	9,769		8,074
Deferred contract costs	(6,431)		(9,184)
Accounts payable and accrued liabilities	(3,047)		12,395
Accrued compensation and benefits	(28,281)		(16,761)
Deferred revenue	18,473		13,296
Income taxes	(13,515)		3,230
Operating lease right-of-use assets and liabilities	(1,293)		(414)
Other assets and liabilities	2,331		(1,697)
Net cash provided by operating activities	111,859		279,698
Cash flows from investing activities:
Purchases of property and equipment and capitalized software	(22,898)		(23,584)
Acquisitions of businesses, net of cash acquired	(4)		(413,940)
Net cash used in investing activities	(22,902)		(437,524)
Cash flows from financing activities:
Cash dividends paid to Maximus shareholders	(34,659)		(34,414)
Purchases of Maximus common stock	(25,843)		(3,363)
Tax withholding related to RSU vesting	(9,673)		(9,818)
Proceeds from borrowings	240,000		500,162
Principal payments for debt	(303,708)		(263,838)
Other	—		(2,762)
Net cash (used in)/provided by financing activities	(133,883)		185,967
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	324		3,263
Net change in cash, cash equivalents, and restricted cash	(44,602)		31,404
Cash, cash equivalents and restricted cash, beginning of period	156,570		88,561
Cash, cash equivalents and restricted cash, end of period	$	111,968	$	119,965

See accompanying notes to unaudited consolidated financial statements.

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Maximus, Inc.

Consolidated Statements of Changes in Shareholders' Equity

(Unaudited)


	Common Stock			Accumulated Other Comprehensive Loss		Retained Earnings		Total Equity
	Shares	Amount
	(in thousands)
Balance at September 30, 2021	61,954	$	532,411	$	(39,908)	$	987,826	$	1,480,329
Net income	—	—		—		53,330		53,330
Foreign currency translation	—	—		459		—		459
Cash flow hedge, net of tax	—	—		2,685		—		2,685
Cash dividends	—	—		—		(17,347)		(17,347)
Dividends on RSUs	—	272		—		(272)		—
Purchases of Maximus common stock	(18)	—		—		(1,379)		(1,379)
Stock compensation expense	—	8,248		—		—		8,248
Tax withholding adjustment related to RSU vesting	—	2,101		—		—		2,101
Balance as of December 31, 2021	61,936	543,032		(36,764)		1,022,158		1,528,426
Net income	—	—		—		50,096		50,096
Foreign currency translation	—	—		(23)		—		(23)
Cash flow hedge, net of tax	—	—		10,689		—		10,689
Cash dividends	—	—		—		(17,312)		(17,312)
Dividends on RSUs	—	392		—		(392)		—
Purchases of Maximus common stock	(330)	—		—		(24,464)		(24,464)
Stock compensation expense	—	6,804		—		—		6,804

RSUs vested	4	—		—		—		—
Balance as of March 31, 2022	61,610	550,228		(26,098)		1,030,086		1,554,216


	Common Stock			Accumulated Other Comprehensive Loss		Retained Earnings		Total Equity
	Shares	Amount
	(in thousands)
Balance at September 30, 2020	61,504	$	513,959	$	(42,638)	$	770,498	$	1,241,819
Net income	—	—		—		64,077		64,077
Foreign currency translation	—	—		6,923		—		6,923
Cash dividends	—	—		—		(17,207)		(17,207)
Dividends on RSUs	—	336		—		(336)		—
Purchases of Maximus common stock	(52)	—		—		(3,363)		(3,363)
Stock compensation expense	—	6,062		—		—		6,062
Balance as of December 31, 2020	61,452	$	520,357	$	(35,715)	$	813,669	$	1,298,311
Net income	—	—		—		80,614		80,614
Foreign currency translation	—	—		770		—		770
Cash dividends	—	—		—		(17,207)		(17,207)
Dividends on RSUs	—	431		—		(431)		—
Stock compensation expense	—	7,417		—		—		7,417
RSUs vested	20	—		—		—		—
Balance as of March 31, 2021	61,472	$	528,205	$	(34,945)	$	876,645	$	1,369,905

See accompanying notes to unaudited consolidated financial statements.

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Maximus, Inc.

Notes to the Unaudited Consolidated Financial Statements

1. ORGANIZATION

Maximus, a Virginia corporation established in 1975, is a leading provider of government services worldwide. Maximus operates under its founding mission of Helping Government Serve the People®, enabling citizens around the globe to successfully engage with their governments at all levels and across a variety of health and human services programs. Maximus delivers innovative business process management and technology solutions that contribute to improved outcomes for citizens and higher levels of productivity, accuracy, accountability, and efficiency of government-sponsored programs. Maximus is a proud partner to government agencies in the United States, Australia, Canada, Italy, Saudi Arabia, Singapore, South Korea, Sweden, and the United Kingdom.

2. SIGNIFICANT ACCOUNTING POLICIES

(a)Basis of Presentation

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries over which the Company has a controlling financial interest, and have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP, and the rules and regulations of the U.S. Securities and Exchange Commission, or SEC. All intercompany balances and transactions have been eliminated in consolidation.

(b)Basis of Presentation for Interim Periods

Certain information and footnote disclosures normally included for the annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted for the interim periods presented. We believe that the unaudited interim financial statements include all adjustments (which are normal and recurring in nature) necessary to present fairly our financial position and the results of operations and cash flows for the periods presented.

The results of operations for the interim periods presented are not necessarily indicative of results that may be expected for the year or future periods. The financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto for the year ended September 30, 2021 included in our Annual Report on Form 10-K for the fiscal year then ended (the "2021 10-K"). We have continued to follow the accounting policies set forth in those financial statements.

(c)Estimates

The preparation of these financial statements, in conformity with U.S. GAAP, 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. At each reporting period end, we make 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 expectations of the future that we believe to be reasonable. The economic and political effects of the COVID-19 global pandemic increase uncertainty, which has reduced our ability to use past results to estimate future performance. Accordingly, our estimates may be subject to greater volatility than has been the case in the past.

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3. BUSINESS SEGMENTS

We conduct our operations through three business segments: U.S. Services, U.S. Federal Services, and Outside the U.S.

U.S. Services

Our U.S. Services Segment provides a variety of business process services ("BPS") such as program administration, appeals and assessments, and related consulting work for U.S. state and local government programs. These services support a variety of programs, including the Affordable Care Act ("ACA"), Medicaid, the Children's Health Insurance Program ("CHIP"), Temporary Assistance to Needy Families ("TANF"), and child support programs. Addressing societal macro trends such as aging populations and rising costs, the segment continues to execute on its clinical evolution strategy by expanding its clinical offerings. This includes assessments to determine whether personal care services are medically necessary and public health offerings such as contact tracing, disease investigation, and vaccine distribution support services as part of the governments' COVID-19 response efforts.

U.S. Federal Services

From technology solutions to program administration and operations, our U.S. Federal Services Segment delivers end-to-end solutions that help various U.S. federal government agencies better deliver on their mission. This also includes appeals and assessments services, system and application development, IT modernization, and maintenance services. The segment also contains certain state-based assessments and appeals work that is part of the segment's heritage within the Medicare Appeals portfolio which continues to be managed within this segment. Benefiting from the Maximus Federal Consulting (formerly Attain Federal) platform, the segment executes on its digital strategy to deliver technology solutions that advance agency missions, including the challenge to modernize, provide better customer experience, and drive process efficiencies. The segment continues to expand its clinical solutions with the acquisition of VES Group, Inc., which manages the clinical evaluation process for U.S. veterans and service members on behalf of the U.S. Department of Veterans Affairs. The segment further supports clinical offerings in public health with new work supporting the U.S. Federal Government's COVID-19 response efforts. This included expanded work with the Centers for Disease Control and Prevention ("CDC") for their helpline and increased support for the IRS Wage and Investment Division's response efforts to general inquiries regarding the Coronavirus Aid Relief & Economic Security ("CARES") Act and Economic Impact Payment Service Plan.

Outside the U.S.

Our Outside the U.S. Segment provides BPS for international governments and commercial clients, transforming the lives of people around the world. Helping people find employment, access vital support, and remain healthy, these services include health and disability assessments, program administration for employment services, wellbeing solutions, and other job seeker related services. We support programs and deliver services in the U.K., including the Health Assessment Advisory Service ("HAAS"), the Work & Health Programme, Fair Start, and Restart; Australia, including jobactive and the Disability Employment Service; Canada, including Health Insurance British Columbia and the Employment Program of British Columbia; in addition to Italy, Saudi Arabia, Singapore, South Korea, and Sweden, where we predominantly provide employment support and job seeker services.

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Table 3: Results of Operation by Business Segment
	For the Three Months Ended						For the Six Months Ended
	March 31, 2022			March 31, 2021			March 31, 2022			March 31, 2021
	Amount		% (1)	Amount		% (1)	Amount		% (1)	Amount		% (1)
	(dollars in thousands)
Revenue:
U.S. Services	$	398,077		$	448,215		$	784,494		$	833,149
U.S. Federal Services	573,288			330,136			1,155,159			735,381
Outside the U.S.	205,961			180,929			388,549			336,304
Revenue	$	1,177,326		$	959,280		$	2,328,202		$	1,904,834
Gross profit:
U.S. Services	$	84,971	21.3 %	$	119,440	26.6 %	$	174,670	22.3 %	$	218,442	26.2 %
U.S. Federal Services	115,153		20.1 %	74,133		22.5 %	241,729		20.9 %	156,629		21.3 %
Outside the U.S.	28,327		13.8 %	37,085		20.5 %	40,207		10.3 %	61,642		18.3 %
Gross profit	$	228,451	19.4 %	$	230,658	24.0 %	$	456,606	19.6 %	$	436,713	22.9 %
Selling, general, and administrative expenses:
U.S. Services	$	38,273	9.6 %	$	36,593	8.2 %	$	73,375	9.4 %	$	74,049	8.9 %
U.S. Federal Services	68,949		12.0 %	50,978		15.4 %	133,874		11.6 %	103,230		14.0 %
Outside the U.S.	24,011		11.7 %	22,013		12.2 %	45,351		11.7 %	42,045		12.5 %
Other (2)	(926)		NM	2,818		NM	1,928		NM	5,045		NM
Selling, general, and administrative expenses	$	130,307	11.1 %	$	112,402	11.7 %	$	254,528	10.9 %	$	224,369	11.8 %
Operating income/(loss):
U.S. Services	$	46,698	11.7 %	$	82,847	18.5 %	$	101,295	12.9 %	$	144,393	17.3 %
U.S. Federal Services	46,204		8.1 %	23,155		7.0 %	107,855		9.3 %	53,399		7.3 %
Outside the U.S.	4,316		2.1 %	15,072		8.3 %	(5,144)		(1.3) %	19,597		5.8 %
Amortization of intangible assets	(22,856)		NM	(5,070)		NM	(45,261)		NM	(11,586)		NM
Other (2)	926		NM	(2,818)		NM	(1,928)		NM	(5,045)		NM
Operating income/(loss)	$	75,288	6.4 %	$	113,186	11.8 %	$	156,817	6.7 %	$	200,758	10.5 %

(1)Percentage of respective segment revenue. Percentages not considered meaningful are marked "NM."

(2)Other selling, general, and administrative expenses includes costs that are not allocated to a particular segment. This includes expenses incurred as part of our acquisitions, as well as potential acquisitions which have not been or may not be completed.

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4. REVENUE RECOGNITION

The Company recognizes revenue as, or when, we satisfy performance obligations under a contract. The majority of our contracts have performance obligations which are satisfied over time. In most cases, we view our performance obligations as promises to transfer a series of distinct services to our customers that are substantially the same and which have the same pattern of service.

Disaggregation of Revenue

In addition to our segment reporting, we disaggregate our revenues by contract type, customer type, and geography. Our operating segments represent the manner in which our Chief Executive Officer reviews our financial results, which is further discussed in "Note 3. Business Segments."


Table 4.1: Revenue by Contract Type
	For the Three Months Ended						For the Six Months Ended
	March 31, 2022			March 31, 2021			March 31, 2022			March 31, 2021
	Amount		%	Amount		%	Amount		%	Amount		%
	(dollars in thousands)
Performance-based	$	516,210	43.9 %	$	349,749	36.4 %	$	1,007,166	43.3 %	$	643,709	33.8 %
Cost-plus	322,823		27.4 %	286,082		29.8 %	662,904		28.5 %	670,565		35.2 %
Fixed price	158,867		13.5 %	146,344		15.3 %	310,372		13.3 %	267,121		14.0 %
Time and materials	179,426		15.2 %	177,105		18.5 %	347,760		14.9 %	323,439		17.0 %
Total revenue	$	1,177,326		$	959,280		$	2,328,202		$	1,904,834


Table 4.2: Revenue by Customer Type
	For the Three Months Ended						For the Six Months Ended
	March 31, 2022			March 31, 2021			March 31, 2022			March 31, 2021
	Amount		%	Amount		%	Amount		%	Amount		%
	(dollars in thousands)
U.S. state government agencies	$	411,287	35.0 %	$	445,697	46.5 %	$	782,834	33.7 %	$	833,811	43.8 %
U.S. federal government agencies	553,707		47.0 %	307,870		32.1 %	1,117,801		48.0 %	693,442		36.4 %
International government agencies	194,800		16.5 %	171,700		17.9 %	366,175		15.7 %	319,042		16.7 %
Other, including local municipalities and commercial customers	17,532		1.5 %	34,013		3.5 %	61,392		2.6 %	58,539		3.1 %
Total revenue	$	1,177,326		$	959,280		$	2,328,202		$	1,904,834


Table 4.3: Revenue by Geography
	For the Three Months Ended						For the Six Months Ended
	March 31, 2022			March 31, 2021			March 31, 2022			March 31, 2021
	Amount		%	Amount		%	Amount		%	Amount		%
	(dollars in thousands)
United States	$	971,365	82.5 %	$	778,350	81.1 %	$	1,939,653	83.3 %	$	1,568,529	82.3 %
United Kingdom	107,898		9.1 %	72,882		7.6 %	193,705		8.3 %	137,668		7.2 %
Australia	46,670		4.0 %	70,947		7.4 %	99,484		4.3 %	126,878		6.7 %
Rest of world	51,393		4.4 %	37,101		3.9 %	95,360		4.1 %	71,759		3.8 %
Total revenue	$	1,177,326		$	959,280		$	2,328,202		$	1,904,834

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Contract balances

Differences in timing between revenue recognition and cash collection result in contract assets and contract liabilities. We classify these assets as accounts receivable — billed and billable and unbilled receivables; the liabilities are classified as deferred revenue.

In many contracts, we bill our customers on a monthly basis shortly after the month end for work performed in that month. These balances are considered collectible and are included within accounts receivable — billed and billable.

Exceptions to this pattern will arise for various reasons, including those listed below.

•Under cost-plus contracts, we are typically required to estimate a contract's share of our general and administrative expenses. This share is based upon estimates of total costs which may vary over time. We typically invoice our customers at an agreed provisional billing rate which may differ from actual rates incurred. If our actual rates are higher than the provisional billing rates, an asset is recorded for this variance; if the provisional billing rates are higher than our actual rates, we record a liability.

•Certain contracts include retainage balances, whereby revenue is earned but some portion of cash payments are held back by the customer for a period of time, typically to allow the customer to confirm the objective criteria laid out by the contract have been met. This balance is classified as accounts receivable — unbilled until restrictions on billing are lifted. As of March 31, 2022, and September 30, 2021, $12.6 million and $10.4 million, respectively, of our unbilled receivables related to amounts pursuant to contractual retainage provisions.

•In certain contracts, we may receive funds from our customers prior to performing operations. These funds are typically referred to as "set-up costs" and reflect the need for us to make investments in infrastructure prior to providing a service. This investment in infrastructure is not a performance obligation which is distinct from the service that is subsequently provided and, as a result, revenue is not recognized based upon the establishment of this infrastructure, but rather over the course of the contractual relationship. The funds are initially recorded as deferred revenue and recognized over the term of the contract. Other contracts may not include set-up fees but will provide higher fees in earlier periods of the contract. The premium on these fees is deferred.

•Some of our contracts, notably our employment services contracts in the Outside the U.S. Segment, include payments for desired outcomes, such as job placement and job retention, and these outcome payments occur over several months. We are required to estimate these outcome fees ahead of their realization and recognize this estimated fee over the period of delivery.

During the three and six months ended March 31, 2022, we recognized revenue of $20.6 million and $61.8 million, respectively, that was included in our deferred revenue balances as of September 30, 2021. During the three and six months ended March 31, 2021, we recognized revenue of $15.2 million and $29.1 million, respectively, that was included in our deferred revenue balances at September 30, 2020.

Contract estimates

We are required to use estimates in recognizing revenue from some of our contracts. As discussed in "Note 2. Significant Accounting Policies," the calculation of these estimates has been complicated by the COVID-19 pandemic, which has reduced our ability to use past results to estimate future performance.

Some of our performance-based contract revenue is recognized based upon future outcomes defined in each contract. This is the case in many of our employment services contracts in the Outside the U.S. Segment, where we are paid as individuals attain employment goals, which may take many months to achieve. We recognize revenue on these contracts over the period of performance. Our estimates vary from contract to contract but may include estimates of the number of participants, the length of the contract, and the participants reaching employment milestones. We are required to estimate these outcome fees ahead of their collection and recognize this estimated fee over the period of delivery. Changes to our estimates are recognized on a cumulative catch-up basis.

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Table 4.4: Effect of Changes in Contract Estimates
	For the Three Months Ended				For the Six Months Ended
	March 31, 2022		March 31, 2021		March 31, 2022		March 31, 2021
	(in thousands, except per share data)
Benefit to/(reduction of) revenue recognized due to changes in contract estimates	$	(1,369)	$	7,603	$	(4,215)	$	15,986
Benefit to/(reduction of) diluted earnings per share recognized due to changes in contract estimates	$	(0.02)	$	0.09	$	(0.05)	$	0.19

Remaining performance obligations

As of March 31, 2022, we had approximately $550 million of remaining performance obligations. We anticipate that we will recognize revenue on approximately 50% of this balance within the next 12 months. This balance excludes contracts with an original duration of twelve months or less, including contracts with a penalty-free termination for convenience clause, and any variable consideration which is allocated entirely to future performance obligations, including variable transaction fees or fees tied directly to costs incurred.

5. EARNINGS PER SHARE


Table 5: Weighted Average Number of Shares - Earnings Per Share
	For the Three Months Ended		For the Six Months Ended
	March 31, 2022	March 31, 2021	March 31, 2022	March 31, 2021
	(in thousands)
Basic weighted average shares outstanding	62,227	62,026	62,256	62,022
Dilutive effect of unvested RSUs and PSUs	154	268	153	190
Denominator for diluted earnings per share	62,381	62,294	62,409	62,212
Unvested anti-dilutive stock units excluded from the dilutive effect (stock units)	173	199	192	201

6. BUSINESS COMBINATIONS

VES Group, Inc. (VES)

On May 28, 2021, the Company acquired 100% of VES for an estimated cash purchase price of $1.37 billion (the "VES Acquisition"). The final purchase price is subject to adjustment and is expected to be finalized during 2022. VES was integrated into our U.S. Federal Services Segment. The VES Acquisition also supports our ongoing strategic priority of expansion into the U.S. Federal market and accelerates our clinical evolution to meet long-term demand for BPS with a clinical dimension. As of March 31, 2022, we have completed our assessment of all acquired assets and liabilities assumed, with the exception of income taxes and the working capital true-up.

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Table 6.1: VES Valuation
	Allocation of Assets and Liabilities as of September 30, 2021		Adjustments		Estimated Allocation of Assets and Liabilities as of March 31, 2022
	(in thousands)
Consideration paid:
Cash consideration paid, net of cash acquired	$	1,360,231	$	—	$	1,360,231
Estimated additional cash payments	4,635		4,988		9,623
Estimated cash consideration, net of cash acquired	1,364,866		4,988		1,369,854
Assets acquired:
Accounts receivable - billed, billable and unbilled	$	44,078	$	—	$	44,078
Prepaid expenses and other current assets	7,955		—		7,955
Property and equipment, net	9,113		(1,092)		8,021
Operating lease right-of-use assets	18,898		—		18,898
Intangible assets	664,000		—		664,000
Other assets	7,166		—		7,166
Total identifiable assets acquired	751,210		(1,092)		750,118
Liabilities assumed:
Accounts payable and accrued compensation	42,182		(4,360)		37,822
Operating lease liabilities	18,898		—		18,898
Income taxes payable, current	5,673		—		5,673
Deferred income taxes	171,497		1,147		172,644
Other long-term liabilities	12,270		—