Annual report pursuant to Section 13 and 15(d)

Revenue Recognition

v3.23.3
Revenue Recognition
 12 Months Ended
Sep. 30, 2023
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 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 service, 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 Service Type
For the Year Ended September 30,
2023 % 2022 % 2021 %
(dollars in thousands)
Program Operations $ 2,607,263  53.2  % $ 2,596,801  56.1  % $ 2,755,820  64.8  %
Clinical Services 1,486,040  30.3  % 1,176,081  25.4  % 699,424  16.4  %
Employment & Other 520,981  10.6  % 551,755  11.9  % 463,695  10.9  %
Technology Solutions 290,444  5.9  % 306,381  6.6  % 335,546  7.9  %
Total revenue $ 4,904,728  $ 4,631,018  $ 4,254,485 
Table 4.2: Revenue by Contract Type
For the Year Ended September 30,
2023 % 2022 % 2021 %
(dollars in thousands)
Performance-based $ 2,425,597  49.5  % $ 2,091,608  45.2  % $ 1,416,562  33.3  %
Cost-plus 1,238,574  25.3  % 1,248,759  27.0  % 1,237,995  29.1  %
Fixed price 717,167  14.6  % 627,402  13.5  % 553,645  13.0  %
Time and materials 523,390  10.7  % 663,249  14.3  % 1,046,283  24.6  %
Total revenue $ 4,904,728  $ 4,631,018  $ 4,254,485 
Table 4.3: Revenue by Customer Type
For the Year Ended September 30,
2023 % 2022 % 2021 %
(dollars in thousands)
U. S. federal government agencies $ 2,344,863  47.8  % $ 2,189,303  47.3  % $ 1,805,131  42.4  %
U.S. state government agencies 1,800,814  36.7  % 1,605,457  34.7  % 1,654,555  38.9  %
International government agencies 663,044  13.5  % 722,192  15.6  % 663,180  15.6  %
Other, including local municipalities and commercial customers 96,007  2.0  % 114,066  2.5  % 131,619  3.1  %
Total revenue $ 4,904,728  $ 4,631,018  $ 4,254,485 
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 September 30, 2023 and 2022, $20.7 million and $13.1 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 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 year ended September 30, 2023, we recognized revenue of $81.5 million included in our deferred revenue balances at September 30, 2022. During the year ended September 30, 2022, we recognized revenue of $103.2 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 milestones 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 milestones, which may take many months to achieve. We recognize revenue over the period of performance. Our estimates vary from contract to contract but may include the number of participants within a portfolio reaching employment milestones and the service delivery periods for participants reaching the employment milestone.
We estimate the total variable fees we will receive using the expected value method. We recognize the fees over the expected period of performance. At each reporting period, we update our estimates of the variable fees to represent the circumstances present at the end of the reporting period. We are required to constrain our estimates to the extent that it is probable that there will not be a significant reversal of cumulative revenue when the uncertainty is resolved. We do not have a history of significant constraints on these contracts.
During the fiscal years ended September 30, 2023 and 2022, we recognized revenue from these performance-based fees of $120.6 million and $142.4 million, respectively. At September 30, 2023 and 2022, we recorded $53.9 million and $55.4 million, respectively, of these estimated outcome fees, which will be collected only when we reach anticipated targets. This balance is included on our consolidated balance sheets within the related contract accounts.
Table 4.4: Effect of Changes in Contract Estimates
For the Year Ended September 30,
2023 2022
(in thousands, except per share data)
Benefit to/(reduction of) revenue recognized due to changes in contract estimates $ (13,346) $ (2,500)
Benefit to/(reduction of) diluted earnings per share recognized due to changes in contract estimates $ (0.16) $ (0.03)
Remaining performance obligations
As of September 30, 2023, we had approximately $300 million of remaining performance obligations. We anticipate that we will recognize revenue on approximately 70% 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 that is allocated entirely to future performance obligations, including variable transaction fees or fees tied directly to costs incurred.