mms-20221231

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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 December 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)

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 60,773,258 shares of the registrant's Common Stock outstanding as of February 6, 2023.

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Table of Contents to First Quarter 2023 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 Consolidated Financial Statements	9
	1. Organization	9
	2. Significant Accounting Policies	9
	3. Business Segments	10
	4. Revenue Recognition	12
	5. Earnings Per Share	13
	6. Debt and Derivatives	14
	7. Fair Value Measurements	15
	8. Equity	16
	9. Other Balance Sheet Items	17
	10. Commitments and Contingencies	18
	11. Subsequent Event	18
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19
	Business Overview	19
	Financial Overview	20
	Results of Operations	20
	Liquidity and Capital Resources	24
	Critical Accounting Policies and Estimates	25
	Non-GAAP and Other Measures	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
Part II - Other Information		29
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities	29
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Mine Safety Disclosures	29
Item 5.	Other Information	29
Item 6.	Exhibits	29
	Signatures	30

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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," "continue," "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 are subject to 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 could lead to penalties, liquidated damages, actual damages, adverse settlement agreements, and/or contract termination;

•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 the COVID-19 pandemic, including the U.S. federal government's ongoing Public Health Emergency declaration;

•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 Form 10-K, filed with the Securities and Exchange Commission on November 22, 2022.

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
	December 31, 2022		December 31, 2021
	(in thousands, except per share amounts)
Revenue	$	1,249,246	$	1,150,876
Cost of revenue	1,004,499		922,721
Gross profit	244,747		228,155
Selling, general, and administrative expenses	146,452		124,221
Amortization of intangible assets	23,518		22,405
Operating income	74,777		81,529
Interest expense	21,606		9,638
Other income/(expense), net	266		(311)
Income before income taxes	53,437		71,580
Provision for income taxes	13,442		18,250
Net income	$	39,995	$	53,330

Earnings per share:
Basic	$	0.65	$	0.86
Diluted	$	0.65	$	0.85
Weighted average shares outstanding:
Basic	61,117		62,262
Diluted	61,196		62,445

Dividends declared per share	$	0.28	$	0.28

See accompanying notes to consolidated financial statements.

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Maximus, Inc.

Consolidated Statements of Comprehensive Income

(Unaudited)


	For the Three Months Ended
	December 31, 2022		December 31, 2021
	(in thousands)
Net income	$	39,995	$	53,330
Other comprehensive income, net of tax:
Foreign currency translation adjustments	8,036		459
Net (losses)/gains on cash flow hedges, net of tax effect of $(1,349) and $957, respectively	(3,781)		2,685
Other comprehensive income	4,255		3,144
Comprehensive income	$	44,250	$	56,474

See accompanying notes to consolidated financial statements.

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Maximus, Inc.

Consolidated Balance Sheets


	December 31, 2022		September 30, 2022
	(unaudited)
	(in thousands)
Assets:
Cash and cash equivalents	$	63,050	$	40,658
Accounts receivable, net	1,014,046		807,110
Income taxes receivable	4,486		2,158
Prepaid expenses and other current assets	174,505		182,387
Total current assets	1,256,087		1,032,313
Property and equipment, net	50,181		52,258
Capitalized software, net	64,963		58,740
Operating lease right-of-use assets	162,289		132,885
Goodwill	1,783,239		1,779,415
Intangible assets, net	782,821		804,904
Deferred contract costs, net	49,030		47,732
Deferred compensation plan assets	39,606		37,050
Deferred income taxes	5,038		4,970
Other assets	41,661		42,447
Total assets	$	4,234,915	$	3,992,714
Liabilities and Shareholders' Equity:
Liabilities:
Accounts payable and accrued liabilities	$	272,196	$	264,553
Accrued compensation and benefits	118,505		178,199
Deferred revenue, current portion	96,201		87,146
Income taxes payable	12,422		718
Long-term debt, current portion	77,479		63,458
Operating lease liabilities, current portion	59,553		63,999
Other current liabilities	109,866		116,374
Total current liabilities	746,222		774,447
Deferred revenue, non-current portion	29,624		21,414
Deferred income taxes	203,545		206,099
Long-term debt, non-current portion	1,486,975		1,292,483
Deferred compensation plan liabilities, non-current portion	44,688		40,210
Operating lease liabilities, non-current portion	119,081		86,175
Other liabilities	23,773		22,515
Total liabilities	2,653,908		2,443,343
Commitments and contingencies (Note 10)
Shareholders' equity:
Common stock, no par value; 100,000 shares authorized; 60,774 shares issued and outstanding as of December 31, 2022 and September 30 2022, respectively (shares in thousands)	562,679		557,978
Accumulated other comprehensive loss	(29,706)		(33,961)
Retained earnings	1,048,034		1,025,354
Total shareholders' equity	1,581,007		1,549,371
Total liabilities and shareholders' equity	$	4,234,915	$	3,992,714

See accompanying notes to consolidated financial statements.

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Maximus, Inc.

Consolidated Statements of Cash Flows

(Unaudited)


	For the Three Months Ended
	December 31, 2022		December 31, 2021
	(in thousands)
Cash flows from operating activities:
Net income	$	39,995	$	53,330
Adjustments to reconcile net income to cash flows from operations:
Depreciation and amortization of property, equipment and capitalized software	12,280		11,365
Amortization of intangible assets	23,518		22,405
Amortization of debt issuance costs and debt discount	1,034		649


Deferred income taxes	(1,331)		(229)
Stock compensation expense	4,403		8,248

Change in assets and liabilities, net of effects of business combinations:
Accounts receivable	(200,749)		(14,114)
Prepaid expenses and other current assets	10,624		(5,115)
Deferred contract costs	(1,013)		(6,811)
Accounts payable and accrued liabilities	3,642		(32,452)
Accrued compensation and benefits	(53,271)		(56,305)
Deferred revenue	14,764		5,929
Income taxes	9,465		10,321
Operating lease right-of-use assets and liabilities	(948)		(6,370)

Other assets and liabilities	2,928		6,230
Net cash used in operating activities	(134,659)		(2,919)
Cash flows from investing activities:
Purchases of property and equipment and capitalized software	(15,697)		(6,327)




Net cash used in investing activities	(15,697)		(6,327)
Cash flows from financing activities:
Cash dividends paid to Maximus shareholders	(17,017)		(17,347)
Purchases of Maximus common stock	—		(1,379)
Tax withholding related to RSU vesting	(8,475)		(9,673)
Payments for contingent consideration	(1,415)		—

Proceeds from borrowings	268,702		100,000
Principal payments for debt	(61,355)		(16,685)
Restricted cash movements	(9,473)		—
Net cash provided by financing activities	170,967		54,916
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	2,421		372
Net change in cash, cash equivalents, and restricted cash	23,032		46,042
Cash, cash equivalents and restricted cash, beginning of period	136,795		156,570
Cash, cash equivalents and restricted cash, end of period	$	159,827	$	202,612

See accompanying notes to 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, 2022	60,774	$	557,978	$	(33,961)	$	1,025,354	$	1,549,371
Net income	—	—		—		39,995		39,995
Foreign currency translation	—	—		8,036		—		8,036
Cash flow hedge, net of tax	—	—		(3,781)		—		(3,781)
Cash dividends	—	—		—		(17,017)		(17,017)
Dividends on RSUs	—	298		—		(298)		—

Stock compensation expense	—	4,403		—		—		4,403

Balance as of December 31, 2022	60,774	$	562,679	$	(29,706)	$	1,048,034	$	1,581,007

	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

See accompanying notes to consolidated financial statements.

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Maximus, Inc.

Notes to the Consolidated Financial Statements

1. ORGANIZATION

Maximus, a Virginia corporation established in 1975, is a leading operator of government health and human services programs and provider of technology solutions to governments. Under our mission of Moving People Forward, we offer industry-leading expertise, including citizen engagement, eligibility and program integrity, independent clinical assessments, case management, and technology modernization services to enable citizens around the globe to successfully engage with their governments at all levels. We are a proud partner to government agencies in the United States, Australia, Canada, Italy, Saudi Arabia, Singapore, South Korea, Sweden, United Arab Emirates, and the United Kingdom.

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements, including the notes, include the accounts of the Company and its wholly-owned subsidiaries, and have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"), and the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). All intercompany balances and transactions have been eliminated in consolidation.

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, 2022 included in our Annual Report on Form 10-K for the fiscal year then ended (the "2022 10-K"). We have continued to follow the accounting policies set forth in those financial statements.

Use of 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.

In May 2021, we acquired VES Group, Inc. As part of the acquisition, we allocated a valuation of $27 million to certain technology assets used by the business, which we elected to amortize over twelve years, which was our best estimate of asset life at that time. In fiscal year 2023, we have taken the opportunity to improve our technology portfolio, including the development of technology which will eventually replace much of the acquired technology. Accordingly, we have revised the asset life on the existing technology assuming the assets will cease being used by September 2026. This change in estimated useful life will result in additional annual amortization expense of $3.8 million per year. In the three months ended December 31, 2022, this change reduced our diluted earnings per share by approximately $0.01.

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3. BUSINESS SEGMENTS

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

U.S. Federal Services

Our U.S. Federal Services Segment delivers end-to-end solutions that help various U.S. federal government agencies better deliver on their mission, including program operations and management, clinical services, and technology solutions. 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 which continues to be managed within this segment. Benefiting from the 2021 acquisition of the Attain Federal business, now managed as Technology Consulting Services, 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.

U.S. Services

Our U.S. Services Segment provides a variety of business process services ("BPS"), such as program administration, 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. As part of the government's COVID-19 response efforts, the segment supported contact tracing, disease investigation, and vaccine distribution support services during the peak of the pandemic. The segment also successfully expanded into the unemployment insurance market where longer term opportunities have materialized. As part of the broader strategy to evolve clinically and address societal macro trends such as aging populations and rising costs, the segment continues to expand its offerings in public health with new work in in-person assessments.

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") and Restart; Australia, including Workforce Australia and the Disability Employment Service; Canada, including the Employment Program of British Columbia; in addition to Italy, Saudi Arabia, Singapore, South Korea, Sweden, and UAE where we predominantly provide employment support and job seeker services.

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Table 3.1: Results of Operation by Business Segment
	For the Three Months Ended
	December 31, 2022				December 31, 2021
	Amount		% (1)		Amount		% (1)
	(dollars in thousands)
Revenue:
U.S. Federal Services	$	618,167			$	581,871
U.S. Services	439,478				386,417
Outside the U.S.	191,601				182,588
Revenue	$	1,249,246			$	1,150,876
Gross profit:
U.S. Federal Services	$	122,694	19.8	%	$	126,576	21.8	%
U.S. Services	83,598		19.0	%	89,699		23.2	%
Outside the U.S.	38,455		20.1	%	11,880		6.5	%
Gross profit	$	244,747	19.6	%	$	228,155	19.8	%
Selling, general, and administrative expenses:
U.S. Federal Services	$	71,649	11.6	%	$	64,925	11.2	%
U.S. Services	45,842		10.4	%	35,102		9.1	%
Outside the U.S.	28,389		14.8	%	21,340		11.7	%
Other (2)	572		NM		2,854		NM
Selling, general, and administrative expenses	$	146,452	11.7	%	$	124,221	10.8	%
Operating income:
U.S. Federal Services	$	51,045	8.3	%	$	61,651	10.6	%
U.S. Services	37,756		8.6	%	54,597		14.1	%
Outside the U.S.	10,066		5.3	%	(9,460)		(5.2)	%
Amortization of intangible assets	(23,518)		NM		(22,405)		NM
Other (2)	(572)		NM		(2,854)		NM
Operating income	$	74,777	6.0	%	$	81,529	7.1	%

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

(2)Other expenses includes credits and 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

We recognize revenue as, or when, we satisfy performance obligations under a contract. The majority of our contracts have performance obligations that 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. We recognize revenue over the performance period as a customer receives the benefits of our services.

Disaggregation of Revenue

In addition to our segment reporting, we disaggregate our revenues by contract type and customer type. 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
	December 31, 2022				December 31, 2021
	(dollars in thousands)
Performance-based	$	569,217	45.6	%	$	490,956	42.7	%
Cost-plus	347,319		27.8	%	340,081		29.5	%
Fixed price	175,073		14.0	%	151,505		13.2	%
Time and materials	157,637		12.6	%	168,334		14.6	%
Total revenue	$	1,249,246			$	1,150,876


Table 4.2: Revenue by Customer Type
	For the Three Months Ended
	December 31, 2022				December 31, 2021
	(dollars in thousands)
U. S. federal government agencies	$	603,918	48.3	%	$	564,094	49.0	%
U.S. state government agencies	437,362		35.0	%	371,547		32.3	%
International government agencies	181,760		14.5	%	171,375		14.9	%
Other, including local municipalities and commercial customers	26,206		2.1	%	43,860		3.8	%
Total revenue	$	1,249,246			$	1,150,876

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 and such balances are considered collectible and are included within accounts receivable, net.

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 December 31, 2022 and September 30, 2022, $19.0 million and $13.1 million, respectively, of our unbilled receivables related to amounts pursuant to contractual retainage provisions.

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•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 that 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 months ended December 31, 2022, we recognized revenue of $51.1 million included in our deferred revenue balances at September 30, 2022. During the three months ended December 31, 2021, we recognized revenue of $41.2 million included in our deferred revenue balances at September 30, 2021.

Contract estimates

We are required to use estimates in recognizing revenue from some of our contracts.

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. For the three months ended December 31, 2022, there was no material effect on revenue or diluted earnings per share from changes in estimates. The corresponding change for the three months ended December 31, 2021 was a reduction to revenue and diluted earnings per share of $4.7 million and $0.05, respectively.

Remaining performance obligations

As of December 31, 2022, we had approximately $425 million of remaining performance obligations. We anticipate that we will recognize revenue on approximately 60% 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
	December 31, 2022	December 31, 2021
	(in thousands)
Basic weighted average shares outstanding	61,117	62,262
Dilutive effect of unvested RSUs and PSUs	79	183
Denominator for diluted earnings per share	61,196	62,445

The diluted earnings per share calculation for the three months ended December 31, 2022 and 2021 excludes approximately 804,000 and 135,000 unvested anti-dilutive restricted stock units, respectively.

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6. DEBT AND DERIVATIVES


Table 6.1: Details of Debt
	December 31, 2022		September 30, 2022
	(in thousands)
Term Loan A, due 2026	$	957,500	$	971,250
Term Loan B, due 2028	347,592		395,000
Revolver	261,566		—
Subsidiary loan agreements	7,135		64
Total debt principal	1,573,793		1,366,314
Less: Unamortized debt-issuance costs and discounts	(9,339)		(10,373)
Total debt	1,564,454		1,355,941
Less: Current portion of long-term debt	(77,479)		(63,458)
Long-term debt	$	1,486,975	$	1,292,483

We entered into a credit agreement with JPMorgan Chase Bank, N.A. in May 2021 comprised of Term Loan A, Term Loan B, and a $600.0 million revolving credit facility ("Revolver"). During the first quarter of fiscal year 2023, we converted our interest rate index from the London Interbank Overnight Rate ("LIBOR") to the Secured Overnight Financing Rate ("SOFR").

The Credit Agreement requires us to comply with a number of covenants, including leverage and interest coverage ratios. At December 31, 2022, we are in compliance with all covenants. We do not believe that the covenants represent a significant restriction on our ability to successfully operate the business or to pay dividends.

In addition to the corporate Credit Agreement, we hold smaller credit facilities in Australia, Canada, and the United Kingdom. These allow our businesses to borrow funds to meet any short-term working capital needs.

The following table sets forth future minimum principal payments due under our debt obligations as of December 31, 2022 for the remainder of fiscal year 2023 through fiscal year 2027 and thereafter:


Table 6.2: Details of Future Minimum Principal Payments Due
	Amount Due
	(in thousands)
January 1, 2023 through September 30, 2023	$	57,873
Year ended September 30, 2024	85,985
Year ended September 30, 2025	92,860
Year ended September 30, 2026	1,002,551
Year ended September 30, 2027	3,485
Thereafter	331,039
Total Payments	$	1,573,793

Interest Rate Derivative Instruments

To reduce our interest rate credit risk, we entered into interest-rate swap agreements covering $500 million of our Term Loan A, effectively setting a fixed rate for a portion of our debt. The balance of the debt pays interest based upon an index. The floating interest rate on these instruments was converted from LIBOR to SOFR in December 2022, concurrent with our debt agreements. In converting our debt and interest-rate swaps, we utilized the practical expedients allowed under ASU No. 2020-04 Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which allowed us to treat these amendments as though the modification was not substantial. At December 31, 2022, our effective interest rate, including the original issuance costs and discount rate, was 6.0%.

Our interest-rate swap agreements expire in May 2026, concurrently with the Term Loan A maturity. As of December 31, 2022, we had an asset of $29.0 million and a liability of $2.7 million, compared to an asset of $31.4 million as of September 30, 2022. These balances were recorded in "other assets" and "other liabilities", respectively, on our consolidated balance sheet. As these hedges are considered effective, all gains and losses are reported within accumulated other comprehensive income on our consolidated statement of comprehensive income.

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7. FAIR VALUE MEASUREMENTS

The following assets and liabilities are recorded at fair value on a recurring basis.

•We hold mutual fund assets within a Rabbi Trust to cover liabilities in our deferred compensation plan. These assets have prices quoted within active markets and, accordingly, are classified as level 1 within the fair value hierarchy.

•We have two interest rate swap agreements, serving to reduce our interest rate risk on our debt. These assets and liabilities can be valued using observable data and, accordingly, are classified as level 2 within the fair value hierarchy.

•We anticipate paying additional consideration for certain acquisitions based upon the subsequent performance of the businesses acquired. This liability is based upon our internal assumptions over revenues, margins, volumes, and contract terms. Accordingly, these inputs are not observable and are classified as level 3 within the fair value hierarchy.

The tables below present assets and liabilities measured and recorded at fair value in our consolidated balance sheets on a recurring basis and their corresponding level within the fair value hierarchy. No transfers between Level 1, Level 2, and Level 3 fair value measurements occurred for the three months ended December 31, 2022.


Table 7.1: Fair Value Measurements
	As of December 31, 2022
	Level 1		Level 2		Level 3		Balance
	(in thousands)
Assets:
Deferred compensation assets - Rabbi Trust	$	24,316	$	—	$	—	$	24,316
Interest rate swap - $300 million notional value	—		29,012		—		29,012
Total assets	$	24,316	$	29,012	$	—	$	53,328
Liabilities:
Interest rate swap - $200 million notional value	$	—	$	2,733	$	—	$	2,733
Contingent consideration	—		—		16,439		16,439
Total liabilities	$	—	$	2,733	$	16,439	$	19,172

The fair values of receivables, prepaids, other assets, accounts payable, accrued costs, and other current liabilities approximate the carrying values as a result of the short-term nature of these instruments. The carrying value of our debt is consistent with the fair value as the stated interest rates in the agreements are consistent with the current market rates used in notes with similar terms in the markets (Level 2 inputs).

Accumulated Other Comprehensive Income

All amounts recorded in accumulated other comprehensive loss are related to our foreign currency translations and interest rate swap, net of tax. The following table shows changes in accumulated other comprehensive loss:


Table 7.2: Details of Changes in Accumulated Other Comprehensive Loss by Category
	Foreign currency translation adjustment		Net unrealized gain on derivatives, net of tax		Total
	(in thousands)
Balance as of September 30, 2022	$	(57,109)	$	23,148	$	(33,961)
Other comprehensive income before reclassifications	8,036		(2,467)		5,569
Amounts reclassified from accumulated other comprehensive loss	—		(1,314)		(1,314)
Net current period other comprehensive losses	8,036		(3,781)		4,255
Balance as of December 31, 2022	$	(49,073)	$	19,367	$	(29,706)

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Contingent Consideration

The fair value of our contingent considerations are based upon estimates of the likely payments, which are based upon assumptions over future performance. The liabilities are reviewed on a quarterly basis and, where changes in estimates arise, these are recorded to selling and general administrative expenses.

Our contingent consideration relates to the businesses below:

•In October 2021, we acquired the student loan servicing business from Navient, rebranded as Aidvantage. Future payments are based upon volumes, up to a maximum payment of $65.0 million. At December 31, 2022 and September 30, 2022, the Aidvantage contingent consideration was $14.0 million and $13.8 million, respectively.

•In January 2022, we acquired BZ Bodies Limited. Future payments are based upon the performance of the business through December 2023, up to a maximum payment of $2.4 million (£2.0 million British Pounds). At December 31, 2022 and September 30, 2022, we recorded a contingent consideration liability for the maximum payment, which we anticipate making in fiscal year 2024.

•In December 2015, we acquired companies doing business as Assessments Australia. Future payments were based upon future revenue earnings. The deadline for the payment expired on December 31, 2022, with no payment being required.

Movement in our contingent consideration balance is as follows:


Table 7.3: Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
	Contingent Consideration
	(in thousands)
Opening contingent consideration as of September 30, 2022	$	16,236
Adjustments to fair value recorded in the period	1,414
Cash payments	(1,415)
Foreign currency translations	204
Closing contingent consideration as of December 31, 2022	$	16,439

8. EQUITY

Stock Compensation

We grant restricted stock units ("RSUs") and performance stock units ("PSUs") to eligible participants under our 2021 Omnibus Incentive Plan, which was approved by the Board of Directors and stockholders. The RSUs granted to employees vest ratably over three to five years and one year for members of the board of directors, in each case from the grant date. PSU vesting is subject to the achievement of certain performance and market conditions and the number of PSUs earned could vary from 0% to 200% of the number of PSUs awarded. The PSUs will vest at the end of a three year-performance period. We issue new shares to satisfy our obligations under these plans. The fair value of each RSU and PSU is calculated at the date of the grant.

During the three months ended December 31, 2022, we issued approximately 308,000 RSUs, which will vest ratably over three to four years, and approximately 137,000 PSUs, which will vest after three years.

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9. OTHER BALANCE SHEET ITEMS

Cash, Cash Equivalents, and Restricted Cash


Table 9.1: Details of Cash and Cash Equivalents and Restricted Cash
	December 31, 2022		September 30, 2022
	(in thousands)
Cash and cash equivalents	$	63,050	$	40,658
Restricted cash (1)	96,777		96,137
Cash, cash equivalents, and restricted cash	$	159,827	$	136,795

(1)Restricted cash is recorded within "Prepaid expenses and other current assets" on the Consolidated Balance Sheets. At December 31, 2022 and September 30, 2022, this balance includes $52.3 million and $60.7 million, respectively, of funds received from a customer which had previously been sold under our Receivables Purchase Agreement; this is offset by a corresponding liability in "Other current liabilities". The majority of the remaining balance are funds held in trust on behalf of certain clients; this asset is similarly offset with a corresponding liability in "Other current liabilities".


Table 9.2: Supplemental Disclosures of Cash Flow Information
	For the Three Months Ended
	December 31, 2022		December 31, 2021
	(in thousands)
Interest payments	$	19,748	$	8,943
Income tax payments	$	4,982	$	8,009

Accounts Receivable, Net


Table 9.3: Details of Accounts Receivable, Net
	December 31, 2022		September 30, 2022
	(in thousands)
Billed and billable receivables	$	879,851	$	723,979
Unbilled receivables	142,844		91,404
Allowance for credit losses	(8,649)		(8,273)
Accounts receivable, net	$	1,014,046	$	807,110

In September 2022, we entered into a Receivables Purchase Agreement with Wells Fargo Bank N.A., under which we may sell certain US-originated accounts receivable balances up to a maximum amount of $110.0 million at any given time. In return for these sales, we receive a cash payment equal to the face value of the receivables less a financing charge.

We account for these transfers as sales. We have no retained interest in the transferred receivables other than administrative responsibilities, and Wells Fargo has no recourse for any credit risk. We estimate that the implicit servicing fees for an arrangement of this size and type would be immaterial.

For the three months ended December 31, 2022, the gross fair value of accounts receivables transferred to Wells Fargo and derecognized from our balance sheet was $209.6 million. In exchange for these sales, we received $208.5 million of cash. The balance, representing a loss on sale from these transfers, is included within our selling, general and administrative expenses. We have recorded these transactions within our operating cash flows. The effective annual interest rate under this program was 4.8%.

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10. COMMITMENTS AND CONTINGENCIES

Litigation

We are subject to audits, investigations, and reviews relating to compliance with the laws and regulations that govern our role as a contractor to agencies and departments of federal, state, local, and foreign governments, and otherwise in connection with performing services in countries outside of the U.S. Adverse findings could lead to criminal, civil, or administrative proceedings, and we could be faced with penalties, fines, suspension, or debarment. Adverse findings could also have a material adverse effect on us because of our reliance on government contracts. We are subject to periodic audits by federal, state, local, and foreign governments for taxes. We are also involved in various claims, arbitrations, and lawsuits arising in the normal conduct of our business. These include but are not limited to bid protests, employment matters, contractual disputes, and charges before administrative agencies. Although we can give no assurance, based upon our evaluation and taking into account the advice of legal counsel, we do not believe that the outcome of any existing matter would likely have a material adverse effect on our consolidated financial position, results of operations, or cash flows.

We evaluate, on a regular basis, developments in our litigation matters and establish or make adjustments to our accruals as appropriate. A liability is accrued if a loss is probable and the amount of such loss can be reasonably estimated. If the risk of loss is probable, but the amount cannot be reasonably estimated, or the risk of loss is only reasonably possible, a liability is not accrued. Due to the inherent uncertainty in the outcome of litigation, our estimates and assessments may prove to be incomplete or inaccurate and could be impacted by unanticipated events and circumstances, adverse outcomes or other future determinations.

Arizona Medicaid claims

From 2004 through 2009, we had a contract with the Arizona Health Care Cost Containment System (AHCCCS) in support of the state’s school-based Medicaid claims. We assisted local school districts with preparing and submitting claims to AHCCCS which, in turn, submitted claims for reimbursement to the Centers for Medicare and Medicaid Services (CMS).

CMS subsequently asserted two disallowances against AHCCCS. AHCCCS contested the first disallowance and ultimately settled that claim with CMS. The second disallowance of approximately $19.9 million was being contested by AHCCCS in court. AHCCCS previously asserted that its agreement with us required us to reimburse AHCCCS for the amounts owed to CMS and, on October 18, 2022, AHCCCS sued Maximus pertaining to the first disallowance - Snyder v. Maximus, Case No. CV2022-053302, Superior Court for the County of Maricopa. AHCCCS sought damages from us of $5.4 million. In December 2022, Maximus and AHCCCS agreed to settle both the lawsuit pertaining to the first disallowance and any assertions by AHCCCS pertaining to the second disallowance. The amount of the settlement had previously been accrued by the company. We exited the federal healthcare-claiming business in 2009 and no longer provide the services at issue in this matter.

11. SUBSEQUENT EVENT

On January 6, 2023, our Board of Directors declared a quarterly cash dividend of $0.28 for each share of our common stock outstanding. The dividend is payable on February 28, 2023, to shareholders of record on February 15, 2023. Based upon the number of shares outstanding, we anticipate a cash payment of approximately $17.1 million.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion is intended to help the reader understand our business, financial condition, results of operations, liquidity and capital resources. You should read this discussion in conjunction with "Risk Factors," "Forward-Looking Statements," and our financial statements and related notes included in our Annual Report on Form 10-K for fiscal year 2022 filed with the Securities and Exchange Commission on November 22, 2022 (the "2022 Form 10-K") and elsewhere in this Quarterly Report on Form 10-Q, as applicable.

Business Overview

We are a global company with approximately 39,500 employees and 12,550 contingent workers dedicated to helping governments on four continents to administer their citizen-facing programs. Under our mission of Moving People Forward, we offer industry-leading expertise, including citizen engagement, eligibility and program integrity, independent clinical assessments and case management, and technology modernization services to enable citizens around the globe to successfully engage with their governments at all levels. We are instrumental in helping people who need governmental support get it.

Over the past five years, we have executed a three-pronged growth strategy: we have evolved through our digital transformation to meet the modernization needs of our clients; we have expanded our clinical assessment capabilities to meet growing demand for independent and conflict-free clinical services; and we have expanded our markets, both organically and through acquisitions.

In fiscal year 2022, we refreshed our strategy and updated the three pillars on which we will focus growth efforts for the next three to five years:

•Customer Services, Digitally Enabled. We apply proven technologies, data, and best practices to make government programs more customer-focused, effective, and deserving of the public's trust. We make it easier for people to connect to government services based on their individual preferences and abilities. We are elevating the customer experience to achieve higher levels of satisfaction, performance, and outcomes through intelligent automation and cognitive computing.

•Future of Health. We are expanding our clinical-related services and are experienced at delivering clinical BPS services at scale. We have established an extensive set of services that frequently requires a network of healthcare professionals who can complete clinical assessments, provide occupational health and independent medical review services, and adjudicate complicated benefits appeals. With the formation of Maximus Public Health ("MPH"), we are able to serve as a resource to governments as they respond to public health threats and address lessons learned from the global pandemic.

•Advanced Technologies for Modernization. We are furthering our credibility as a technology leader, enabling the transformation of government programs to be resilient, dynamic, integrated, and equitable. Leveraging our deep relationships and program knowledge, we are delivering technology-driven business transformation of government missions with a strategic near-term focus on hybrid cloud solutions, information intelligence, and hyper-automation.

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Financial Overview

A number of factors have affected our results for the first quarter of fiscal year 2023, the most significant of which we have listed below. More detail on these changes is presented below within our "Results of Operations" section.

•Our results have been tempered by the strength of the United States Dollar compared to the other currencies in which we do business.

•Although we have reported growth in all three segments, our profit margins within the United States in our current year are lower than in prior years. The end of short-term pandemic-related work, which had higher margins, is the principal driver.

•Our work in both periods has been affected by the ongoing public health emergency. Our results in future periods are expected to receive the benefit of increases in transaction-based work which was reduced or suspended as a result of the pandemic.

•The cost of financing our debt has increased year-over-year as interest rates have increased.

Results of Operations

The following table sets forth items from our consolidated statements of operations for the three months ended December 31, 2022 and December 31, 2021.


Table MD&A 1: Consolidated Results of Operations
	For the Three Months Ended
	December 31, 2022		December 31, 2021
	(dollars in thousands, except per share data)
Revenue	$	1,249,246	$	1,150,876
Cost of revenue	1,004,499		922,721
Gross profit	244,747		228,155
Gross profit percentage	19.6 %		19.8 %
Selling, general, and administrative expenses	146,452		124,221
Selling, general, and administrative expenses as a percentage of revenue	11.7 %		10.8 %
Amortization of intangible assets	23,518		22,405
Operating income	74,777		81,529
Operating margin	6.0 %		7.1 %
Interest expense	21,606		9,638
Other income/(expense), net	266		(311)
Income before income taxes	53,437		71,580
Provision for income taxes	13,442		18,250
Effective tax rate	25.2 %		25.5 %
Net income	$	39,995	$	53,330
Earnings per share:
Basic	$	0.65	$	0.86
Diluted	$	0.65	$	0.85

Our business segments have different factors driving revenue fluctuations and profitability. The sections that follow cover these segments in greater detail. Our revenue reflects fees earned for services provided. Cost of revenue consists of direct costs related to labor and related overhead, subcontractor labor, outside vendors, rent, and other direct costs. The largest component of cost of revenue, approximately two-thirds, is labor, including subcontracted labor.

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Table MD&A 2: Changes in Revenue, Cost of Revenue, and Gross Profit for the Three Months Ended December 31, 2022
	Revenue				Cost of Revenue				Gross Profit
	Dollars		% Change		Dollars		% Change		Dollars		% Change
	(dollars in thousands)
Three Months Ended December 31, 2021	$	1,150,876			$	922,721			$	228,155
Organic effect	118,643		10.3	%	98,924		10.7	%	19,719		8.6	%
Acquired growth	2,113		0.2	%	1,256		0.1	%	857		0.4	%
Currency effect compared to the prior period	(22,386)		(1.9)	%	(18,402)		(2.0)	%	(3,984)		(1.7)	%
Three Months Ended December 31, 2022	$	1,249,246	8.5	%	$	1,004,499	8.9	%	$	244,747	7.3	%

Selling, general, and administrative expenses ("SG&A")

Selling, general, and administrative expenses ("SG&A") consist 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 that are not client-facing, or at a corporate level. Corporate costs are allocated to segments on a consistent and rational basis. Fluctuations in our SG&A are primarily driven by changes in our administrative cost base, which is not directly driven by changes in our revenue. As part of our work for the U.S. federal government and many states, we allocate these costs using a methodology driven by the U.S. Federal Cost Accounting Standards.

Our SG&A expense has increased year-over-year primarily driven by growth in our business, including additional spending in anticipation of future work, and approximately $6.5 million related to severance programs anticipated to reduce costs in future periods.

Interest Expense

Our interest expense increased from $9.6 million in the first quarter of fiscal year 2022 to $21.6 million in the first quarter of fiscal year 2023, principally driven by increases in our interest rate. Our effective interest rate at December 31, 2022 was 6.0%, compared to 2.3% at December 31, 2021. We have mitigated our risk by fixing interest rates on $500 million of our debt and our near term capital allocation plan continues to prioritize reducing our debt using our free cash flow.

Provision for Income Taxes

Our effective income tax rate for the three months ended December 31, 2022 and 2021, was 25.2 % and 25.5 %, respectively. For fiscal year 2023, we expect the effective tax rate to be between 24.5% and 25.5%.

U.S. Federal Services Segment

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Table MD&A 3: U.S. Federal Services Segment - Financial Results
	For the Three Months Ended
	December 31, 2022			December 31, 2021
	(dollars in thousands)
Revenue	$	618,167		$	581,871
Cost of revenue	495,473			455,295
Gross profit	122,694			126,576
Selling, general, and administrative expenses	71,649			64,925
Operating income	51,045			61,651
Gross profit percentage	19.8		%	21.8		%
Operating margin percentage	8.3		%	10.6		%

Our revenue and cost of revenue for the three months ended December 31, 2022, increased 6.2% and 8.8%, respectively. All growth in fiscal year 2023 was organic and net of anticipated declines in short-term work related to the pandemic.

Our U.S. Federal Services business grew from higher volumes in clinical services due, in part, to new wins and from the expansion of a large, cost-plus contract. As is typically the case, such contracts record lower margins than transaction-based work. Fiscal year 2022 also received some benefit from short-term, higher-margin work related to the pandemic.

We anticipate that our U.S. Federal Services business will continue to grow in fiscal year 2023, driven primarily by additional volumes anticipated in the VES business. We anticipate operating margins will range between 10% and 11%.

U.S. Services Segment


Table MD&A 4: U.S. Services Segment - Financial Results
	For the Three Months Ended
	December 31, 2022			December 31, 2021
	(dollars in thousands)
Revenue	$	439,478		$	386,417
Cost of revenue	355,880			296,718
Gross profit	83,598			89,699
Selling, general, and administrative expenses	45,842			35,102
Operating income	37,756			54,597
Gross profit percentage	19.0		%	23.2		%
Operating margin percentage	8.6		%	14.1		%

Our revenue and cost of revenue for the three months ended December 31, 2022, increased 13.7% and 19.9%, respectively, compared to three months ended December 31, 2021. All movement was organic and net of anticipated declines in short-term work related to the pandemic.

New business has increased revenue but margins remain tempered as the short-term, pandemic-related work from prior years has declined.

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This segment is expected to see the greater benefit from the resumption of Medicaid eligibility redeterminations, following passage of the Consolidated Appropriations Act, 2023 (the omnibus spending bill) which decouples redeterminations from the end of the Public Health Emergency (PHE). Subsequent to the passage of the omnibus spending bill, President Biden on January 30, 2023 announced plans to end the existing PHE and national emergency declarations on May 11, 2023. While this will impact areas of healthcare delivery such as COVID testing, treatment and telemedicine, the decoupling of Medicaid redeterminations under the omnibus spending bill effectively superseded this decision by the administration. The nature and timing of the benefit will be dependent upon how the states coordinate the return of these services, but we anticipate that services will commence during our third fiscal quarter, with a greater contribution in the final quarter of the year. We anticipate a full year operating profit margin will be between 9% and 11%.

Outside the U.S. Segment

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") and Restart; Australia, including Workforce Australia (formerly jobactive) and the Disability Employment Service; Canada, including the Employment Program of British Columbia; in addition to Italy, Saudi Arabia, Singapore, South Korea, Sweden, and UAE, where we predominantly provide employment support and job seeker services.


Table MD&A 5: Outside the U.S. Segment - Financial Results
	For the Three Months Ended
	December 31, 2022			December 31, 2021
	(dollars in thousands)
Revenue	$	191,601		$	182,588
Cost of revenue	153,146			170,708
Gross profit	38,455			11,880
Selling, general, and administrative expenses	28,389			21,340
Operating (loss)/income	10,066			(9,460)
Gross profit percentage	20.1		%	6.5		%
Operating margin percentage	5.3		%	(5.2)		%


Table MD&A 6: Outside the U.S. Segment - Changes in Revenue, Cost of Revenue and Gross Profit
	Revenue				Cost of Revenue				Gross Profit
	Amount		% Change		Amount		% Change		Amount		% Change
	(dollars in thousands)
Three Months Ended December 31, 2021	$	182,588			$	170,708			$	11,880
Organic effect	29,286		16.0	%	(416)		(0.2)	%	29,702		250.0	%
Acquired growth	2,113		1.2	%	1,256		0.7	%	857		7.2	%
Currency effect compared to the prior period	(22,386)		(12.3)	%	(18,402)		(10.8)	%	(3,984)		(33.5)	%
Three Months Ended December 31, 2022	$	191,601	4.9	%	$	153,146	(10.3)	%	$	38,455	223.7	%

This segment experienced significant organic revenue growth with stable costs. This benefit was partially offset by significant declines in the value of international currencies against the United States Dollar.

Our organic revenue growth is principally driven by the United Kingdom Restart contract, which is now at full capacity; our margins in fiscal year 2022 were tempered as the Restart contract was still ramping up. Within our Australian business, we have taken steps to reduce costs to reflect the decline in our work.

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Much of our revenue growth stems from our employment services contracts, where we are paid based upon our ability to place individuals in long-term sustained employment. As a result, changes in our estimates of our ability to place people in work and the time that this will take can have significant effects on our revenue. Our estimates are based upon historical performance, where appropriate and available, and are constantly updated. This segment also includes a large software implementation project where revenue is based upon estimates of our anticipated overall performance. Changes in this estimate are recorded upon as a cumulative adjustment to revenue. There were no significant adjustments in this fiscal quarter.

We anticipate our Outside the United States Segment will experience greater stability in fiscal year 2023, with less disruption from residual pandemic factors and underpinned by our core programs. We anticipate operating margins will range between 3% and 7% for the full fiscal year.

Liquidity and Capital Resources

Our primary sources of liquidity are cash on hand, cash from operations, and availability under our revolving credit facilities. As of December 31, 2022, we had $63.1 million in cash and cash equivalents. We believe that our current cash position, access to our revolving debt, and cash flow generated from operations should be not only sufficient for our operating requirements but also to enable us to fund required long-term debt repayments, dividends and any share purchases we might choose to make. See "Note 6. Debt and Derivatives" to the Consolidated Financial Statements for a more detailed discussion of our debt financing arrangements.

During the first quarter of fiscal year 2023, we entered into a number of debt-related transactions.

•We entered into an additional interest rate swap, to bring the total balance of our credit facility subject to fixed rates to $500 million. This allows us greater opportunity to predict and manage our interest payments.

•We amended both our debt and the corresponding interest rate swaps to use interest rates based upon the Secured Overnight Financing Rate (SOFR), replacing the previous LIBOR basis. This transaction anticipates the phasing out of LIBOR rates in 2023.

•As part of the transition to SOFR, we took the opportunity to redeem some of our Term Loan B debt, which we repaid using our revolving credit facility.


Table MD&A 7: Net Change in Cash and Cash Equivalents and Restricted Cash
	For the Three Months Ended
	December 31, 2022		December 31, 2021
	(in thousands)
Operating activities:
Net cash used in operating activities	$	(134,659)	$	(2,919)
Net cash used in investing activities	(15,697)		(6,327)
Net cash provided by financing activities	170,967		54,916
Effect of foreign exchange rates on cash and cash equivalents and restricted cash	2,421		372
Net change in cash and cash equivalents and restricted cash	$	23,032	$	46,042

Net Cash Used In Operating Activities

Net cash used in operating activities was $134.7 million in fiscal year 2023. Our first fiscal quarter is typically light for cash flow as collections often slow in December, bonus payments are made and, in recent years, we have paid deferred payroll taxes. The biggest driver of this decline was due to strong collections experienced in the fourth quarter of last year, followed by delays in December. Our Days Sales Outstanding ("DSO") at September 30, 2022 was 62 days; the corresponding DSO at December 31, 2022 was 74 days. We anticipate improved collections through the remainder of the year; by the end of January we had already received sufficient funds to pay down approximately $75 million of revolving debt. Operating cash flows were also affected by increases in the costs of servicing our debt, owing to rising interest rates.

Net Cash Used In Investing Activities

Investing activities in fiscal years 2023 and 2022 reflect acquisitions of property and equipment and investment in software.

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Net Cash Provided By Financing Activities

Our net borrowings on our credit agreement correspond with the slow payments received this quarter.

At September 30, 2022, our restricted cash balance was inflated by a large customer receivable of $60.4 million, which was paid to us after we had sold the balance to a third party, resulting in a financing cash inflow. At December 2022, a similar event arose for a sum of $52.3 million. Absent further transactions, we anticipate a financing cash outflow of $52.3 million related to this cash balance at March 31, 2023.

Cash in Foreign Locations

We have no requirement to remit funds from our foreign locations to the United States. We will continue to explore opportunities to remit additional funds, taking into consideration the working capital requirements and relevant tax rules in each jurisdiction. When we are unable to remit funds back without incurring a penalty, we will consider these funds indefinitely reinvested until such time as these restrictions are changed. As a result, we do not record U.S. deferred income taxes on any funds held in foreign jurisdictions. We have not attempted to calculate our potential liability from any transfer of these funds, as any such transaction might include tax planning strategies that we have not fully explored. Accordingly, it is not possible to estimate the potential tax obligations if we were to remit all of our funds from foreign locations to the United States.

Free Cash Flow


Table MD&A 8: Free Cash Flow
	For the Three Months Ended
	December 31, 2022		December 31, 2021
	(in thousands)
Net cash used in operating activities	$	(134,659)	$	(2,919)
Purchases of property and equipment and capitalized software	(15,697)		(6,327)
Free cash flow	$	(150,356)	$	(9,246)

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires us to make estimates, judgments, and assumptions that affect the amounts reported. Actual results could differ from those estimates. The 2022 Form 10-K, as filed with the SEC on November 22, 2022, includes a summary of critical accounting policies we believe are the most important to aid in understanding our financial results. There have been no changes to those critical accounting policies that have had a material impact on our reported amounts of assets, liabilities, revenues, or expenses during the three months ended December 31, 2022.

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Non-GAAP and Other Measures

We utilize non-GAAP measures where we believe it will assist users of our financial statements in understanding our business. The presentation of these measures is meant to complement, but not replace, other financial measures in this document. The presentation of non-GAAP numbers is not meant to be considered in isolation, nor as an alternative to revenue growth, cash flows from operating activities, net income, or earnings per share as measures of performance. These non-GAAP measures, as determined and presented by us, may not be comparable to related or similarly titled measures presented by other companies.

For the three months ended December 31, 2022, 15% of our revenue was generated outside the U.S. We believe that users of our financial statements wish to understand the performance of our foreign operations using a methodology that excludes the effect of year-over-year exchange rate fluctuations. To calculate year-over-year currency movement, we determine the current fiscal year's results for all foreign businesses using the exchange rates in the prior fiscal year.

In recent years, we have made a number of acquisitions. We believe users of our financial statements wish to evaluate the performance of our operations, excluding changes that have arisen due to businesses acquired or disposed of. We identify acquired revenue and cost of revenue by showing these results for periods for which no comparative results exist within our financial statements. We identify revenue and cost of revenue that has been disposed of in a similar manner. This information is supplemented by our calculations of organic growth. To calculate organic growth, we compare current fiscal year results excluding transactions from acquisitions or disposals, to our prior fiscal year results.

Our recent acquisitions have resulted in significant intangible assets which are amortized over their estimated useful lives. We believe users of our financial statements wish to understand the performance of the business by using a methodology that excludes the amortization of our intangible assets. Accordingly, we have calculated our operating profit, net income, and earnings per share, excluding the effect of the amortization of intangible assets. We have included the following table showing our reconciliation of these income measures to their corresponding U.S. GAAP measures.


Table MD&A 9: Non-GAAP Adjusted Results Excluding Amortization of Intangible Assets
	For the Three Months Ended
	December 31, 2022			December 31, 2021
	(dollars in thousands, except per share data)
Operating income	$	74,777		$	81,529
Add back: Amortization of intangible assets	23,518			22,405
Adjusted operating income excluding amortization of intangible assets (Non-GAAP)	$	98,295		$	103,934
Adjusted operating income margin excluding amortization of intangible assets (Non-GAAP)	7.9		%	9.0		%

Net income	$	39,995		$	53,330
Add back: Amortization of intangible assets, net of tax	17,360			16,530
Adjusted net income excluding amortization of intangible assets (Non-GAAP)	$	57,355		$	69,860

Diluted earnings per share	$	0.65		$	0.85
Add back: Effect of amortization of intangible assets on diluted earnings per share	0.29			0.27
Adjusted diluted earnings per share excluding amortization of intangible assets (Non-GAAP)	$	0.94		$	1.12

In order to sustain our cash flows from operations, we regularly refresh our fixed assets and technology. We believe that users of our financial statements wish to understand the cash flows that directly correspond with our operations and the investments we must make in those operations using a methodology that combines operating cash flows and capital expenditures. We provide free cash flow to complement our statement of cash flows. Free cash flow shows the effects of our operations and replacement capital expenditures and excludes the cash flow effects of acquisitions, purchases of our common stock, dividend payments, and other financing transactions. We have provided a reconciliation of cash flows from operations to free cash flow in "Liquidity and Capital Resources."

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To sustain our operations, our principal source of financing comes from receiving payments from our customers. We believe that users of our financial statements wish to evaluate our efficiency in converting revenue into cash receipts. Accordingly, we provide DSO, which we calculate by dividing billed and unbilled receivable balances at the end of each quarter by revenue per day for the period. Revenue per day for a quarter is determined by dividing total revenue by 91 days.

Our Credit Agreement includes the defined term Consolidated EBITDA and our calculation of Adjusted EBITDA conforms to the Credit Agreement. We believe our investors appreciate the opportunity to understand the possible restrictions which arise from our Credit Agreement.

•Adjusted EBITDA is also a useful measure of performance that focuses on the cash generating capacity of the business as it excludes the non-cash expenses of depreciation and amortization, and makes for easier comparisons between the operating performance of companies with different capital structures by excluding interest expense and therefore, the impacts of financing costs.

•The measure of Adjusted EBITA is a step in calculating Adjusted EBITDA and facilitates comparisons to similar businesses as it isolates the amortization effect of business combinations.

•The Credit Agreement requires us to adjust for unusual, non-recurring expenses, certain non-cash adjustments and estimated synergies from acquisitions.

We have provided a reconciliation from net income to Non-GAAP Adjusted EBITA, Non-GAAP Adjusted EBITDA, and Non-GAAP Adjusted EBITDA per our Credit Agreement, as shown below.


Table MD&A 10: Reconciliation of Net Income to Non-GAAP Adjusted EBITA, Non-GAAP Adjusted EBITDA, and Non-GAAP Adjusted EBITDA per our Credit Agreement
	For the Three Months Ended		For the Trailing Twelve Months Ended
	December 31, 2022		December 31, 2022
	(in thousands)
Net income	$	39,995	$	190,493
Adjustments:
Interest expense	21,606		57,933
Other (income)/expense, net	(266)		2,258
Provision for income taxes	13,442		68,462
Amortization of intangibles	23,518		91,578
Stock compensation expense	4,403		26,631
Acquisition-related expenses	1,394		(764)
Gain on sale of land and building	—		(11,046)
Adjusted EBITA - Non-GAAP measure	104,092		425,545
Depreciation and amortization of property, equipment, and capitalized software	12,280		43,245
Adjusted EBITDA - Non-GAAP measure	116,372		$	468,790
Adjustments permitted by our credit agreement - Non-GAAP measure	13,513		40,328
Adjusted EBITDA per our credit agreement - Non-GAAP measure	$	129,885	$	509,118

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

In the normal course of business, we are exposed to financial risks such as changes in interest rates, foreign currency exchange rates, and counterparty risk. We use derivative instruments to manage selected interest rate exposures. The Company's market rate risk disclosures set forth in Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk" on the 2022 Form 10-K, as filed with the SEC on November 22, 2022, have not changed materially during the three month period ended December 31, 2022.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer concluded that these disclosure controls and procedures were effective and designed to ensure that the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of our internal control that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II - Other Information

Item 1. Legal Proceedings

Refer to our disclosures included in "Note 10. Commitments and Contingencies" included in Part 1, Item 1 of this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

There were no material changes during the three months ended December 31, 2022, to the risk factors previously disclosed in the 2022 Form 10-K, as filed with the SEC on November 22, 2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a)None.

(b)None.

(c)None.

Item 3. Defaults Upon Senior Securities

(a)None.

(b)None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

(a)None.

(b)None.

Item 6. Exhibits

Exhibit
No.

Description of Exhibit

31.1

Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.

31.2

Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.

32.1

Certification of Chief Executive Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

32.2

Certification of Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

10.1

Amendment No. 3 to Credit Agreement by and between the Company, JPMorgan Chase Bank, N.A., as administrative agent and the lenders.

101.INS

XBRL Instance Document.

101.SCH

XBRL Taxonomy Extension Schema Document.

101.CAL

XBRL Taxonomy Calculation Linkbase Document.

101.DEF

XBRL Taxonomy Definition Linkbase Document.

101.LAB

XBRL Taxonomy Label Linkbase Document.

101.PRE

XBRL Taxonomy Presentation Linkbase Document.

104

Cover Page Interactive Data File. (formatted as Inline XBRL tags and contained in Exhibit 101)



v			Filed herewith.
Φ			Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Maximus, Inc.

	/s/ Bruce L. Caswell	February 9, 2023
By:	Bruce L. Caswell
	President and Chief Executive Officer
	(Principal Executive Officer)

	/s/ David W. Mutryn	February 9, 2023
By:	David W. Mutryn
	Chief Financial Officer
	(Principal Financial Officer)