Maximus, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Revenue Recognition

Revenue Recognition

6 Months Ended

Mar. 31, 2020

Revenue from Contract with Customer [Abstract]

We recognize revenue as, or when, we satisfy performance obligations under a contract. The majority of our contracts have performance obligations which are satisfied over time. In most cases, we view our performance obligations as promises to transfer a series of distinct services to our 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 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 2. Segment information."

By operating segment and service


	Three Months Ended March 31,						Six Months Ended March 31,
(dollars in thousands)	2020		2019		2020		2019
Program administration	$	236,436	$	219,732	$	473,343	$	438,705
Assessments and appeals	29,916		33,331		63,747		70,552
Workforce and children services	28,734		23,898		58,120		47,801
Other	13,612		13,776		25,769		27,892
Total U.S. Health and Human Services	$	308,698	$	290,737	$	620,979	$	584,950

Program administration	$	304,367	$	209,996	$	586,055	$	350,117
Technology solutions	44,508		37,993		88,114		76,876
Assessments and appeals	44,516		41,747		85,793		79,730
Total U.S. Federal Services	$	393,391	$	289,736	$	759,962	$	506,723

Workforce and children services	$	34,683	$	69,759	$	91,922	$	143,037
Assessments and appeals	62,286		67,771		124,929		130,081
Program administration	16,945		15,922		34,039		31,242
Other	2,132		2,595		4,533		5,106
Total Outside the U.S.	$	116,046	$	156,047	$	255,423	$	309,466

Total revenue	$	818,135	$	736,520	$	1,636,364	$	1,401,139

By contract type


	Three Months Ended March 31,						Six Months Ended March 31,
(dollars in thousands)	2020		2019		2020		2019
Performance-based	$	275,669	$	261,592	$	568,427	$	574,479
Cost-plus	398,973		298,133		761,784		473,431
Fixed price	100,504		139,871		219,720		287,022
Time and materials	42,989		36,924		86,433		66,207
Total revenue	$	818,135	$	736,520	$	1,636,364	$	1,401,139

By customer type


	Three Months Ended March 31,						Six Months Ended March 31,
(dollars in thousands)	2020		2019		2020		2019
New York State government agencies	$	100,222	$	89,858	$	197,445	$	181,570
Other U.S. state government agencies	217,195		197,870		427,081		396,772
Total U.S. state government agencies	317,417		287,728		624,526		578,342

United States Federal Government agencies	374,909		270,623		726,742		468,901
International government agencies	107,460		146,292		238,276		289,073
Other, including local municipalities and commercial customers	18,349		31,877		46,820		64,823
Total revenue	$	818,135	$	736,520	$	1,636,364	$	1,401,139

By geography


	Three Months Ended March 31,						Six Months Ended March 31,
(dollars in thousands)	2020		2019		2020		2019
United States of America	$	702,089	$	580,473	$	1,380,941	$	1,091,673
United Kingdom	63,722		78,334		136,724		151,752
Australia	24,540		50,997		61,975		104,370
Rest of world	27,784		26,716		56,724		53,344
Total revenue	$	818,135	$	736,520	$	1,636,364	$	1,401,139

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 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 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 have been 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 which is distinct from the service that is subsequently provided and, as a result, revenue is not recognized based upon the

establishment of this infrastructure, but rather over the course of the contractual relationship. The funds are initially recorded as deferred revenue and recognized over the term of the contract. Other contracts may not include set-up fees but will provide higher fees in earlier periods of the contract. The premium on these fees is deferred.

•Some of our contracts, notably our welfare-to-work contracts in the Outside the U.S. Segment, include payments for outcomes, such as job retention, which 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.

Of our revenue for the three and the six months ended March 31, 2020, approximately $22.1 million and $40.1 million were from cash payments made to us prior to October 1, 2019. For the three and six months ended March 31, 2019, we recognized revenue of $10.2 million and $32.0 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. Organization and Basis of Presentation", the calculation of these estimates has been complicated by the COVID-19 pandemic, which has reduced our ability to use past results to estimate future performance.

Some of our performance-based contract revenue is recognized based upon future outcomes defined in each contract. This is the case in many of our 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 have been 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 which have been 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.

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. We are required to use estimates in recognizing certain revenue.

Where we have changes to our estimates, these are recognized on a cumulative catch-up basis. In the three and six months ended March 31, 2020, we reported reductions in revenue of $6.3 million and $7.7 million from changes in estimates as of September 30, 2019. In the three and six months ended March 31, 2019, we reported reductions in revenue of $6.5 million and $8.0 million, respectively, 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.


	Three Months Ended March 31,						Six Months Ended March 31,
(dollars in thousands)	2020		2019		2020		2019
Deferred contract cost capitalization	$	2,666	$	5,113	$	3,995	$	8,212
Deferred contract cost amortization	1,321		1,478		3,497		2,820

This amortization was recorded within our "cost of revenue" on our consolidated statements of operations.

Remaining performance obligations

At March 31, 2020, we had approximately $270 million of remaining performance obligations. We anticipate that we will recognize revenue on approximately 55% 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.