Annual report pursuant to Section 13 and 15(d)

Revenue recognition

Revenue recognition
12 Months Ended
Sep. 30, 2020
Revenue from Contract with Customer [Abstract]  
Revenue recognition 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 customer 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 and geography reporting, we disaggregate our revenues by product, contract type and customer type. Our operating segments represent the manner in which our Chief Executive Officer reviews our financial results that are further discussed in "Note 2. Business segments."
By operating segment and service
Year ended September 30,
(in thousands) 2020 2019
Program administration 1,008,591  883,772 
Assessments and appeals 141,446  136,109 
Workforce and children services 127,595  100,454 
Other 51,642  56,153 
Total U.S. Services 1,329,274  1,176,488 
Program administration 1,288,741  779,573 
Technology solutions 169,259  160,342 
Assessments and appeals 175,337  171,282 
Total U.S. Federal Services 1,633,337  1,111,197 
Workforce and children services 206,657  272,801 
Assessments and appeals 218,704  252,447 
Program administration 66,002  63,734 
Other 7,563  10,148 
Total Outside the U.S. 498,926  599,130 
Total revenue 3,461,537  2,886,815 

By contract type
Year ended September 30,
(in thousands) 2020 2019
Performance-based $ 1,109,153  $ 1,193,075 
Cost-plus $ 1,578,912  $ 1,088,541 
Fixed price $ 471,505  $ 441,146 
Time and materials $ 301,967  $ 164,053 
Total revenue $ 3,461,537  $ 2,886,815 
By customer type
Year ended September 30,
(in thousands) 2020 2019
New York State government agencies $ 355,282  $ 362,724 
Other U.S. state government agencies 988,945  804,213 
Total U.S. state government agencies 1,344,227  1,166,937 
United States Federal Government agencies 1,559,165  1,040,980 
International government agencies 467,185  558,599 
Other, including local municipalities and commercial customers 90,960  120,299 
Total revenue $ 3,461,537  $ 2,886,815 

With the exceptions of the U.S. Federal Government and New York State, no customer provided more than 10% of our annual revenue in fiscal years 2020 and 2019.
Many of our U.S. state government agency programs receive significant federal funding. We believe that the credit risk associated with our receivables is limited due to the creditworthiness of our customers.
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. Funds 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 that may vary over time. We typically invoice our customers at an agreed provisional billing rate that will 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 rate is higher than our actual rate, we record a liability.
Certain contracts include retainage balances, where revenue is earned, but cash payments are held back by the customer for a period of time, typically to allow the customer to confirm that 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.
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 welfare-to-work contracts in the Outside the U.S. Segment, include payments for outcomes that 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 year ended September 30, 2020, we recognized revenue of $54.6 million included in our deferred revenue balances at September 30, 2019. During the year ended September 30, 2019, we recognized revenue of $39.9 million from payments made prior to October 1, 2018.
Contract estimates
We are required to use estimates in recognizing revenue from some of our contracts. As discussed in "Note 1. Business and summary of significant accounting policies," the calculation of these estimates have 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 welfare-to-work 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 realization and recognize this estimated fee over the period of delivery. In almost all of the jurisdictions in which we operate, the employment markets have experienced significant changes due to the COVID-19 pandemic. For our existing program participants, many employment opportunities were terminated or are no longer available. Our volume of new program participants is expected to increase, but it is unclear as to when these populations will be in a position to seek employment in many industries that were curtailed by the COVID-19 pandemic. In some cases, we anticipate that we may be unable to place individuals in employment in the short-term. During the fiscal year ended September 30, 2020, we recognized revenue from these performance-based fees of $45.0 million. At September 30, 2020, we have recorded $24.8 million of these estimated outcome fees which will be collected only when we reach the targets we anticipate. This balance is included on our consolidated balance sheets within the related contract accounts.
Other performance-based contracts with future outcomes include those where we recognize an average effective rate per participant based upon the total volume of expected participants. In this instance, we are required to estimate the amount of discount applied to determine the average rate of revenue per participant. Our revised estimates of participant numbers are based upon our updated evaluation of probable future volumes.
Changes to our estimates are recognized on a cumulative catch-up basis. In the years ended September 30, 2020 and 2019, we reported reductions in revenue of $9.2 million and $10.9 million from changes in estimates, respectively.
Remaining performance obligations
At September 30, 2020, we had approximately $400 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.
Accounts receivable reserves
Changes in the reserves against accounts receivable were as follows:
  Year ended September 30,
 (in thousands) 2020 2019 2018
Balance at beginning of year $ 5,382  $ 4,285  $ 6,843 
Additions to reserve 12,976  4,018  243 
Deductions (12,307) (2,921) (2,801)
Balance at end of year $ 6,051  $ 5,382  $ 4,285 
In evaluating the net realizable value of accounts receivable, we consider such factors as current economic trends, customer credit-worthiness, and changes in the customer payment terms and collection trends. Changes in the assumptions used in analyzing a specific account receivable may result in a reserve being recognized in the period in which the change occurs.
At September 30, 2020 and 2019, $12.3 million and $11.5 million, respectively, of our unbilled receivables related to amounts pursuant to contractual retainage provisions. These provisions are in place to allow the customer
to confirm that the objective criteria set out within their respective contracts were met. We anticipate that the majority of the fiscal year 2020 balance will be billed and collected during fiscal year 2021.