Quarterly report pursuant to Section 13 or 15(d)

Revenue Recognition

v3.19.2
Revenue Recognition
 9 Months Ended
Jun. 30, 2019
Revenue from Contract with Customer [Abstract]  
Revenue Recognition Revenue Recognition
Beginning October 1, 2018, we recognize revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers. We adopted this standard on October 1, 2018, using the modified retrospective method; accordingly, only periods after October 1, 2018, utilize ASC Topic 606.
Under ASC Topic 606, we recognize revenue as, or when, we satisfy performance obligations under a contract. We account for a contract when the parties have approved the contract and are committed to perform on it, the rights of each party and the payment terms are identified, the contract has commercial substance and it is probable that we will collect substantially all of the consideration. A performance obligation is a promise in a contract to transfer a distinct good or service, or a series of distinct goods or services, to a customer. The transaction price of a contract must be allocated to each performance obligation and recognized as the performance obligation is satisfied.
Although our services may have many components, these components are not necessarily distinct performance obligations as they may be interdependent on or interrelated to each other. Where our contracts contain more than one performance obligation, we allocate the contract’s transaction price to each performance obligation using our best estimate of the standalone selling price of each component. This method will vary from contract to contract. Where available, we utilize standalone selling prices of similar components. If this information is unavailable, we utilize a suitable metric to allocate selling price, such as costs incurred.
The majority of our contracts have performance obligations which are satisfied over time. In most cases, we view our performance obligations as promises to transfer a series of distinct services to our 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. This continuous transfer of control is supported by the unilateral right of many of our customers to terminate contracts for convenience, without having to provide justification for this decision. Where we are reimbursed on a cost-plus basis, we recognize revenue based upon our costs incurred to date; where we are reimbursed on a fixed price basis, we recognize revenue based upon an appropriate output measure which may be time elapsed or another measure within the contract. When we have variable fees, such as revenue related to the volume of work or award fees, we allocate that revenue to the distinct periods of service to which they relate. In estimating our variable fees, 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.
Other performance obligations are satisfied at a point in time, rather than over time. We recognize revenue only when the customer has received control over the goods provided. Revenue recognition on these performance obligations does not require a significant level of judgment or estimation.
Where we have contract modifications, these are reviewed to determine whether they should be accounted for as part of the original performance obligation or as a separate contract. Where the modification changes the scope or price and the additional performance obligations are at their standalone selling price, these services are considered as a separate contract. Where there is a modification and the additional performance obligations are not at their standalone selling price, we consider whether those performance obligations are distinct from those already delivered. If services are distinct from those already provided, the contract is accounted for prospectively, as though the original contract had been terminated and a new arrangement entered into. Where the modification includes goods or services which are not distinct from those already provided, we record a cumulative adjustment to revenue based upon a remeasurement of progress towards the complete satisfaction of performance obligations not yet fully delivered.
Disaggregation of revenue
In addition to our segment reporting, we disaggregate our revenues by product, 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 2. Segment information."
By operating segment and service
(dollars in thousands) Three Months Ended June 30, 2019 Nine Months Ended June 30, 2019
Program administration $ 212,638  $ 651,343 
Assessments and appeals 35,657  106,209 
Workforce and children services 29,146  76,947 
Other 13,691  41,583 
Total U.S. Health and Human Services 291,132  876,082 
Program administration 204,622  554,739 
Technology solutions 39,994  116,870 
Assessments and appeals 47,679  127,409 
Total U.S. Federal Services 292,295  799,018 
Workforce and children services 65,819  208,856 
Assessments and appeals 62,152  192,233 
Program administration 16,767  48,009 
Other 2,545  7,651 
Total Outside the U.S. 147,283  456,749 
Total revenue $ 730,710  $ 2,131,849 

By contract type
(dollars in thousands) Three Months Ended June 30, 2019 Nine Months Ended June 30, 2019
Performance-based $ 260,052  $ 834,531 
Cost-plus 282,795  756,227 
Fixed price 142,940  429,962 
Time and materials 44,923  111,129 
Total revenue $ 730,710  $ 2,131,849 
By customer type
(dollars in thousands) Three Months Ended June 30, 2019 Nine Months Ended June 30, 2019
New York State government agencies $ 90,295  $ 271,865 
Other U.S. state government agencies 204,272  601,044 
Total U.S. state government agencies 294,567  872,909 
United States Federal Government agencies 276,294  745,195 
International government agencies 136,848  425,921 
Other, including local municipalities and commercial customers 23,001  87,824 
Total revenue $ 730,710  $ 2,131,849 

By geography
(dollars in thousands) Three Months Ended June 30, 2019 Nine Months Ended June 30, 2019
United States of America $ 583,428  $ 1,675,101 
United Kingdom 72,265  224,017 
Australia 48,744  153,114 
Rest of world 26,273  79,617 
Total revenue $ 730,710  $ 2,131,849 

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 and the liabilities 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 which may vary over time. We typically invoice our customers at an agreed provisional billing rate which 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, whereby revenue is earned but cash payments are held back by the customer for a period of time, typically to allow the customer to evaluate the quality of our performance.
•In certain contracts, notably our welfare-to-work contracts, we earn revenue from program participants achieving outcomes such as sustained employment for periods up to 24 months. This revenue may only be invoiced at the conclusion of this period of performance. Since we are required to recognize revenue over the period where the customer receives the benefit, we record an unbilled receivable.
•In certain contracts, we may receive funds from our customers prior to performing operations. These funds are typically referred to as “set-up costs” and reflect the need for us to make investments in infrastructure prior to providing a service. This investment in infrastructure is not a performance obligation which is distinct from the service that is subsequently provided and, as a result, revenue is not recognized based upon the establishment of this infrastructure, but rather over the course of the contractual relationship. The funds are initially recorded as deferred revenue and recognized over the term of the contract. Other contracts may not include set-up fees but will provide higher fees in earlier periods of the contract. The premium on these fees is deferred.
During the nine months ended June 30, 2019, we recognized revenue of $35.0 million included in our deferred revenue balances at September 30, 2018. During the three months ended June 30, 2019, we recognized $23.2 million included in our deferred revenue at March 31, 2019.
Contract estimates
We are required to use estimates in recognizing certain revenue. Our most significant estimates relate to:
•Our welfare-to work contracts, where we estimate our future variable consideration by estimating the volume and timing of our caseload reaching employment milestones;
•Our transaction-based contracts where we provide a significant discount to our customer in future periods, where we must calculate an average rate of revenue per transaction based upon our estimates of the total revenue and anticipated volume of work from the contract; and
•Our cost-plus contracts, which require us to prepare an estimate of our indirect costs which are allocated to our contracts.
Where we have changes to our estimates, these are recognized on a cumulative catch-up basis. In the nine months ended June 30, 2019, our revenue included a reduction of $10.3 million from changes in estimates.
Deferred contract costs
For many contracts, we incur significant incremental costs at the beginning of an arrangement. Typically, these costs relate to the establishment of infrastructure which we utilize to satisfy our performance obligations with the contract. We report these costs as deferred contract costs and amortize them on a straight-line basis over the shorter of the useful economic life of the asset or the anticipated term of the contract.
Since September 30, 2018, we have deferred $13.0 million of costs. During the three and nine months ended June 30, 2019, we amortized $1.9 million and $4.7 million of deferred contract costs. This amortization was recorded within our "cost of revenue" on our consolidated statement of operations.
Remaining performance obligations
At June 30, 2019, we had approximately $355 million of remaining performance obligations. We anticipate that we will recognize revenue on approximately 55% of this balance within the next twelve 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.