(dollars in thousands) Revenue for the three months ended December 31, 2018
Performance-based $ 312,887
Cost-plus 175,298
Fixed price 147,151
Time and materials 29,283
Total revenue $ 664,619

By customer type


(dollars in thousands)	Three Months Ended March 31, 2019		Six Months Ended March 31, 2019
New York State government agencies	$	89,858	$	181,570
Other U.S. state government agencies	197,870		396,772
Total U.S. state government agencies	$	287,728	$	578,342

United States Federal Government agencies	270,623		468,901
International government agencies	146,292		289,073
Other, including local municipalities and commercial customers	31,877		64,823
Total revenue	$	736,520	$	1,401,139

(dollars in thousands) Revenue for the three months ended December 31, 2018
New York State government agencies $ 91,712
Other U.S. state government agencies 198,902
Total U.S. state government agencies 290,614

United States Federal Government agencies 198,278
International government agencies 142,781
Other, including local municipalities and commercial customers 32,946
Total revenue $ 664,619

By geography


(dollars in thousands)	Three Months Ended March 31, 2019		Six Months Ended March 31, 2019
United States of America	$	580,473	$	1,091,673
United Kingdom	78,334		151,752
Australia	50,997		104,370
Rest of world	26,716		53,344
Total revenue	$	736,520	$	1,401,139

(dollars in thousands) Revenue for the three months ended December 31, 2018
United States of America $ 511,200
United Kingdom 73,418
Australia 53,373
Rest of world 26,628
Total revenue $ 664,619

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 ~~a standard contract,~~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 ~~under standard contract terms~~ and isare 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 ~~lower~~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 ~~three~~six months ended ~~December~~March 31, ~~2018,~~2019, we recognized revenue of ~~$21.8~~$32.0 million included in our deferred revenue balances at September 30, 2018. During the three months ended March 31, 2019, we recognized $23.0 million included in our deferred revenue at December 31, 2018.

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 fiscal year 2019, our revenue included a reduction of ~~$1.5~~$8.0 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 $8.2 million of costs. During the three and six months ended ~~December~~March 31, ~~2018,~~2019, we ~~deferred $3.1~~amortized $1.5 million and ~~amortized $1.3~~$2.8 million of deferred contract costs. This amortization was recorded within our "cost of revenue" on our consolidated statement of operations.

Remaining performance obligations

At ~~December~~March 31, ~~2018,~~2019, we had approximately ~~$320~~$409 million of remaining performance obligations. We anticipate that we will recognize revenue on approximately ~~65%~~50% 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.

4. Earnings Per Share

The weighted average number of shares outstanding used to compute earnings per share was as follows:


	Three Months Ended March 31,			Six Months Ended March 31,
(shares in thousands)	2019	2018	2019	2018
Basic weighted average shares outstanding	64,369	65,856	64,600	65,857
Dilutive effect of unvested RSUs	274	412	217	366
Denominator for diluted earnings per share	64,643	66,268	64,817	66,223

Three Months Ended December 31,
(shares in thousands) 2018 2017
Basic weighted average shares outstanding 64,827
65,866
Dilutive effect of employee stock options and unvested RSUs 150
311
Denominator for diluted earnings per share 64,977
66,177

Our dilutive earnings per share for the three months ended December 31, 2018, excludes any effect from approximately 282,000 unvested restricted stock units (RSUs) as adding them to our calculation would be antidilutive. No RSUs have been excluded from the calculation for the three months ended December 31, 2017.

5. Acquisition of Citizen Engagement Centers Business

On November 16, 2018, we acquired General Dynamics Information Technology's citizen engagement centers business, pursuant to an asset purchase agreement dated October 5, 2018. The assets acquired included existing

contracts, contractual relationships and bids for contracts submitted prior to the acquisition date, as well as interests in leased properties, fixed assets, working capital and intangible assets. This acquisition strengthens our position in the administration of federal government programs. This business has been integrated into our U.S. Federal Services Segment. The contract provides for a purchase price of ~~$400~~$400.0 million adjusted for the net working capital in excess of or less than an agreed upon target representing an estimate of normalized net working capital. The estimated working capital balance at November 16, 2018, was higher than this estimate and, accordingly, we ~~made a cash payment~~incurred an estimated purchase price of ~~$421.8 million at that date. This amount is subject to adjustment before~~$430.6 million. We anticipate finalizing the ~~end of~~purchase price during the ~~second~~third quarter of fiscal year 2019. ~~We currently estimate that our total consideration will be $429.3 million.~~ To fund the acquisition, we utilized $150 million of borrowings from our credit facility with the balance from our cash on our balance sheet.

As part of the acquisition, we incurred acquisition-related expenses, including legal, accounting and other consultant services. During the fiscal year ended September 30, 2018, we incurred $0.5 million of such costs; during the ~~three~~six months ended ~~December~~March 31, ~~2018,~~2019, we incurred an additional $2.7 million. We also incurred additional investing cash outflows of $4.5 million from the acquisition of software licenses needed for newly-acquired employees.

We considered this transaction to be an acquisition of a business. At this time, we are in the process of finalizing our valuation of the acquired assets and assumed liabilities, including our analysis of the value of the intangible assets acquired and ~~accordingly,~~ the ~~balances below represent our best~~tax effects of the acquisition. In addition, we continue to look for potential assets or liabilities which existed at the acquisition date. Our current estimate ~~and are subject to change:~~of the allocation of the purchase price, updated from December 31, 2018, is shown below.


(dollars in thousands)	Estimated purchase price allocation at December 31, 2018		Adjustments		Estimated purchase price allocation at March 31, 2019
Estimated cash consideration	$	429,335	$	1,238	$	430,573

Billed and unbilled receivables	$	145,319	$	(3,450)	$	141,869
Property and equipment	6,454		—		6,454
Other assets	681		3,412		4,093
Intangible assets	122,300		—		122,300
Total identifiable assets acquired	274,754		(38)		274,716
Accounts payable and other liabilities	33,296		(1,091)		32,205
Net identifiable assets acquired	241,458		1,053		242,511
Goodwill	187,877		185		188,062
Net assets acquired	$	429,335	$	1,238	$	430,573

(dollars in thousands) Estimated purchase price allocation
Estimated cash consideration $ 429,335

Billed and unbilled receivables $ 145,319
Property and equipment 6,454
Other assets 681
Intangible assets 122,300
Total identifiable assets acquired 274,754
Accounts payable and other liabilities 33,296
Net identifiable assets acquired 241,458
Goodwill 187,877
Net assets acquired $ 429,335

The fair value of the goodwill is estimated to be ~~$187.9~~$188.1 million. This goodwill represents the value of the assembled workforce and the enhanced knowledge, capabilities and qualifications held by the business. This goodwill balance is expected to be deductible for tax purposes.

The fair value of the intangible assets acquired is estimated to be $122.3 million, representing customer relationships. We have assumed a useful economic life of ten years for most contracts, representing our expectation of the period over which we will receive the benefit. Typically, our customer relationships are based upon the provision of services to our customers on a daily or monthly basis and, although contracts are frequently rebid, we believe that an incumbent provider typically enjoys significant competitive advantages. In reviewing the contract portfolio, we allocated a shorter life to a contract which pertains to the United States decennial census. This contract requires managing a significant ramp-up and ramp-down of work over the census cycle. As much of the benefit from this contract is anticipated to occur within the next two years, we have utilized a shorter asset life for this customer relationship. The average weighted intangible asset life is 7.6 years and amortization will be recorded on a straight-line basis.

(dollars in thousands) Useful life Fair value
Customer relationships - all contracts except U.S. Census 10 years $ 85,300
Customer relationships - U.S. Census 2 years 37,000
Total intangible assets $ 122,300

(dollars in thousands)

Useful life

Fair value

Customer relationships - all contracts except U.S. Census

10 years

85,300

Customer relationships - U.S. Census

2 years

37,000

Total intangible assets

122,300

~~During the three months ended December 31, 2018,~~The contribution of the acquired business ~~contributed $101.3 million of revenue~~for the three and ~~$18.9 million of gross profit to our results.~~ six months ended March 31, 2019, is shown below.


	Acquisition Contribution for
(dollars in thousands)	Three Months Ended March 31, 2019		Six Months Ended March 31, 2019
Revenue	$	176,003	$	277,266
Gross profit	32,672		51,620

The following table presents certain results for the three and six months ended ~~December~~March 31, ~~2018~~2019 and ~~2017,~~2018, as though the acquisition had occurred on October 1, 2017. This pro forma information is presented for information only and is not necessarily indicative of the results if the acquisition had taken place on that date. The pro forma results below eliminate intercompany transactions, include amortization charges for acquired intangible assets, eliminate pre-acquisition transaction costs and include estimates of interest expense, as well as corresponding changes in our tax charge.


	Pro forma results for the three months ended March 31,						Pro forma results for the six months ended March 31,
(dollars in thousands, except per share amounts)	2019		2018		2019		2018
Revenue	$	736,520	$	770,590	$	1,499,568	$	1,592,723
Net income	61,766		56,803		120,962		119,991
Basic earnings per share attributable to MAXIMUS	0.96		0.87		1.88		1.81
Diluted earnings per share attributed to MAXIMUS	0.96		0.86		1.87		1.80

Pro forma results for the three months ended December 31,
(dollars in thousands, except per share amounts) 2018 2017
Revenue $ 763,048
$ 822,132
Net income $ 59,196
$ 63,293
Basic earnings per share attributable to MAXIMUS $0.92 $0.95
Diluted earnings per share attributed to MAXIMUS $0.91 $0.94

Changes in goodwill for the ~~three~~six months ended ~~December~~March 31, ~~2018,~~2019, were as follows:


(dollars in thousands)	U.S. Health & Human Services		U.S. Federal Services		Outside the United States		Total
Balance as of September 30, 2018	$	139,588	$	228,148	$	32,146	$	399,882
Estimated effect of the acquisition of citizen engagement centers business	20,071		165,498		2,493		188,062
Foreign currency translation	—		—		(193)		(193)
Balance as of March 31, 2019	$	159,659	$	393,646	$	34,446	$	587,751

(dollars in thousands) U.S. Health & Human Services U.S. Federal Services Outside the United States Total
Balance as of September 30, 2018 $ 139,588
$ 228,148
$ 32,146
$ 399,882
Estimated effect of the acquisition of citizen engagement centers business —
187,877
—
187,877
Foreign currency translation (1,195 ) —
(829 ) (2,024 )
Balance as of December 31, 2018 $ 138,393
$ 416,025
$ 31,317
$ 585,735
Although the citizen engagement center business has been integrated into our U.S. Federal Services Segment, the acquisition provides benefits across all three segments. The most significant contracts acquired are cost-plus arrangements, which allow us to recover a greater share of our shared corporate overhead. Accordingly, we have allocated the goodwill based on an estimate of the relative fair value of the benefit to each segment.

With the reorganization of the business on October 1, 2018, we reallocated our goodwill to our new reporting segments. This reallocation was based upon the relative fair values of the operating segments on the date of the reorganization. ~~Some of our goodwill is subject to foreign exchange fluctuations and, accordingly, we will record foreign exchange fluctuations in the U.S. Health and Human Services Segment.~~

There have been no impairment charges to our goodwill.

The following table sets forth the components of intangible assets (in thousands):


	As of March 31, 2019										As of September 30, 2018
(dollars in thousands)	Cost		Accumulated Amortization		Intangible Assets, net		Cost		Accumulated Amortization		Intangible Assets, net
Customer contracts and relationships	$	248,770	$	54,838	$	193,932	$	129,113	$	42,683	$	86,430
Technology based intangible assets	5,648		4,267		1,381		5,750		4,212		1,538
Trademarks and trade names	4,480		4,439		41		4,496		4,429		67
Total	$	258,898	$	63,544	$	195,354	$	139,359	$	51,324	$	88,035

As of December 31, 2018 As of September 30, 2018
(dollars in thousands) Cost Accumulated
Amortization Intangible
Assets, net Cost Accumulated
Amortization Intangible
Assets, net
Customer contracts and relationships $ 248,323
$ 45,273
$ 203,050
$ 129,113
$ 42,683
$ 86,430
Technology based intangible assets 5,564
4,113
1,451
5,750
4,212
1,538
Trademarks and trade names 4,469
4,417
52
4,496
4,429
67
Total $ 258,356
$ 53,803
$ 204,553
$ 139,359
$ 51,324
$ 88,035

As of ~~December~~March 31, ~~2018,~~2019, our intangible assets have a weighted average remaining life of ~~9.3~~9.2 years, comprising ~~9.3~~9.2 years for customer contracts and relationships, ~~4.8~~4.6 years for technology-based intangible assets, and ~~1.1~~0.8 years for trademarks and trade names. The estimated future amortization expense for the remainder of the current fiscal year and the next five fiscal years for the intangible assets held by the Company as of ~~December~~March 31, ~~2018,~~2019, is as follows (in thousands):


Six months ended September 30, 2019	$	18,044
2020	35,307
2021	18,258
2022	15,884
2023	15,785
2024	15,662

Nine months ended September 30, 2019 $ 27,541
2020 35,281
2021 18,233
2022 15,859
2023 15,762
2024 15,639

6. Income Tax

Our effective income tax rate for the three and six months ended ~~December~~March 31, ~~2018~~2019 was 23.4% and ~~2017, was 26.2%~~ 24.8%, respectively,and ~~24.9%,~~24.1%and 24.5% for the comparable prior year periods, respectively.

Our results for the three and six months ended ~~December~~March 31 ~~2017,~~, 2018, included the estimated effects of the Tax Cuts and Jobs Act (the Act), which was signed on December 22, 2017, and was effective from January 1, 2018. We recorded a one-time "toll tax" on our undistributed and previously untaxed earnings in foreign locations of approximately $9.5 million and a one-time benefit from the reduction of our deferred tax liabilities of $10.6 ~~million during fiscal year 2018.~~million. We have completed our analysis of these items and have not recorded any adjustments in this period.

During the ~~three~~six months ended ~~December~~March 31, ~~2018~~2019 and ~~2017,~~2018, we made income tax payments of ~~$7.1~~$37.2 million and ~~$4.0~~$28.5 million, respectively.

7. Supplemental Disclosures

Under a resolution adopted in June 2018, the Board of Directors authorized the purchase, at management's discretion, of up to an aggregate of $200 million of our common stock. During the ~~three~~six months ended ~~December~~March 31, ~~2018,~~2019, we purchased ~~approximately 650,000~~0.7 million of our common shares at a cost of ~~$41.3~~$45.4 million. During the ~~three~~six months ended ~~December~~March 31, ~~2017,~~2018, we acquired approximately 17,000 common shares at a cost of $1.0 million. At ~~December~~March 31, ~~2018, $151.5~~2019, $147.4 million remained available for future stock purchases. ~~Since December 31, 2018, we have acquired an additional 61,900 common shares at a cost of $4.1 million, leaving $147.4 million available for future purchases.~~

During the ~~three~~six months ended ~~December~~March 31, ~~2018,~~2019, we granted ~~330,000~~346,000 RSUs to our board of directors and employees. These awards will vest ratably over one and five ~~years.~~ years, respectively.

Our deferred compensation plan uses both mutual fund and life insurance investments to fund its obligations. The mutual funds are recorded at fair value, based upon quoted prices in active markets, and the life insurance investments at cash surrender value; changes in value are reported in the Consolidated Statement of Operations. At ~~December~~March 31, ~~2018,~~2019, the deferred compensation plan held ~~$18.0~~$20.0 million of the mutual fund investments.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and other amounts included within current assets and liabilities that meet the definition of a financial instrument are shown at values equivalent to fair value due to the short-term nature of these items. Our accounts receivable billed and billable

balance includes both amounts invoiced and amounts that are ready to be invoiced where the funds are collectible within standard invoice terms. Our accounts receivable unbilled balance includes balances where revenue has been earned but no invoice was issued on or before ~~December~~March 31, ~~2018.~~2019.

As noted above, we utilized our credit facility in November 2018 to fund part of the citizen engagement centers acquisition. During the ~~three~~six months ended ~~December~~March 31, ~~2018~~2019 and ~~2017,~~2018, we made interest payments of ~~$0.2~~$1.8 million and less than $0.1 million, respectively. At ~~December~~March 31, ~~2018,~~2019, we had borrowings of ~~$120.0~~$75.0 million outstanding on the facility.

Litigation

In August 2017, the Company and certain officers were named as defendants in a putative class action lawsuit filed in the U.S. District Court for the Eastern District of Virginia. The plaintiff alleged the defendants made a variety of materially false and misleading statements, or failed to disclose material information, concerning the status of the Company’s Health Assessment Advisory Service project for the U.K. Department for Work and Pensions from the period of October 20, 2014, through February 3, 2016. In August ~~2018, the defendants’~~ 2018, our motion to dismiss the case was granted, and the case was dismissed. In October 2018, the plaintiffs filed a notice of appeal to the U.S. Circuit Court for the Fourth Circuit. That appeal is pending. At this time, it is not possible to reasonably predict whether this matter will be permitted to proceed as a class or to reasonably estimate the value of the claims asserted, and we are unable to estimate the potential loss or range of loss.

A state Medicaid agency has been notified of two proposed disallowances by the Centers for Medicare and Medicaid Services (CMS) totaling approximately ~~$31~~$31.0 million. From 2004 through 2009, we had a contract with the state agency in support of its school-based Medicaid claims. We entered into separate agreements with the school districts under which we assisted the districts with preparing and submitting claims to the state Medicaid agency which, in turn, submitted claims for reimbursement to CMS. The state has asserted that its agreement with us requires us to reimburse the state for the amounts owed to CMS. However, our agreements with the school districts require them to reimburse us for such amounts, and therefore we believe the school districts are responsible for any amounts that ultimately must be refunded to CMS. Although it is reasonably possible that a court could conclude we are responsible for the full balance of the disallowances, we believe our exposure in this matter is limited to our fees associated with this work and that the school districts will be responsible for the remainder. We have ~~established a reserve to cover~~reserved our estimated fees earned from this engagement relating to the ~~disallowances.~~disallowances. We exited the federal healthcare-claiming business in 2009 and no longer provide the services at issue in this matter. No legal action has been initiated against us.

8. Recent Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases. The new standard requires that assets and liabilities arising under leases be recognized on the balance sheet. The standard also requires additional quantitative and qualitative disclosures that provide the amount, timing and uncertainty of cash flows relating to lease arrangements. This standard is effective for us on October 1, 2019. We will adopt this standard using a modified retrospective ~~approach which requires retrospective application to the earliest period presented in the respective financial statements.~~approach. This approach also provides practical expedients related to leases that commenced prior to the effective date and allows the use of hindsight when evaluating lease ~~options.~~options. We ~~are currently evaluating the likely effects~~expect that upon adoption we will recognize a material right-of-use asset and lease liability on our ~~business.~~balance sheet. We do not expect the standard to have a material impact on our cash flows or results of operations.

9. Subsequent Events

On ~~January 4,~~April 5, 2019, our Board of Directors declared a quarterly cash dividend of $0.25 for each share of our common stock outstanding. The dividend is payable on ~~February 28,~~May 31, 2019, to shareholders of record on ~~February~~May 15, 2019.

~~On January 10, 2018,~~Based upon the number of shares outstanding, we ~~announced the retirement of~~anticipate a ~~member of our Board of Directors, John Haley. Mr. Haley had previously deferred his RSU awards and, as a result, we will record a tax benefit~~cash payment of approximately ~~$1.7 million during the three month period ending March 31, 2019.~~

$16 million.

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

The following discussion and analysis of financial condition and results of operations is provided to enhance the understanding of, and should be read in conjunction with, our Consolidated Financial Statements and related Notes included both herein and in our Annual Report on Form 10-K for the year ended September 30, 2018, which was filed with the Securities and Exchange Commission on November 20, 2018.

Business Overview

We are a leading operator of government health and human services programs worldwide. We act as a partner to governments under our mission of Helping Government Serve the People^®. We use our experience, business process management expertise, innovation and technology solutions to help government agencies run effective, efficient and accountable programs.

Our company was founded in 1975 and grew both organically and through acquisitions during the early 2000s. Beginning in 2006, we narrowed our service offerings to focus in the area of business process services (BPS) primarily in the health services and human services markets. In parallel, we divested or exited a number of non-core businesses that fell outside these two areas. Our subsequent growth was driven by the expansion of our health services business around the globe, new welfare-to-work contracts outside the United States and the growth of our business with the United States Federal Government. This growth has been both organic and through acquisitions.

Most of our business depends upon government demand for our support services, their propensity to outsource and their procurement processes. These may be affected, both positively and detrimentally, by changes in presidential administration, the balance of power within a coalition government or legislative body, by the relative priorities of a government and the processes followed by a government in tendering, procuring and awarding contracts. Beginning in fiscal year 2017, we experienced what we believed was a slowdown due to an industry pause tied to the transition of a new presidential administration in the United States. Although the transition occurred at the federal level, we experienced the effects on some of our U.S.-based business as many states depend upon federal funds to finance the services they provide. As a result, ourOur short-term growth expectations were impacted by changes in the industry that we believe were tied to changes in the political environment in the United States that started in 2017. We continue to experience longer procurement cycles, increased delays and contract award protests. Some of this was due to policy and budget uncertainty. Further, agency staffing shortfalls tied to the slow presidential nomination process hindered the decision-making process at both the federal and the state level.

Longer-term, we believe the ongoing demand for our services driven by demographic, economic and legislative trends, coupled with our strong position within our industry, will continue to foster future growth. Our long-term growth thesis is based on the following factors:

•Demographic trends, including increased longevity and more complex health needs, place an increased burden on government social benefit and safety-net programs. At the same time, programs that address societal needs must be a good use of taxpayer dollars and achieve their intended outcomes. We believe the macro-economic trends of demographics and government needs, coupled with the need to achieve value for money, will continue to drive demand for our services.

•Our contract portfolio offers us good revenue visibility. Our contracts are typically multi-year arrangements and we have customer relationships which have lasted decades. Because of this longevity, our contract portfolio at any point in time can typically be used to identify approximately 90% of our anticipated revenue for the next twelve months.

•We maintain a strong reputation within the government health and human services industry. Our deep client relationships and reputation for delivering outcomes and efficiencies creates a strong barrier to entry in a risk-averse environment. Entering our markets typically requires expertise in complex procurement processes, operation of multi-faceted government programs and an ability to serve and engage with diverse populations.

•We have a portfolio target operating profit margin that ranges between 10% and 15% with high cash conversion, a healthy balance sheet and access to a $400 million credit facility. Our financial flexibility allows us to fund investments in the business, complete strategic acquisitions to further supplement our core capabilities and seek new adjacent platforms.We believe that our financial strength offers government clients reliability and dependability that we can deliver on program objectives and achieve contractual targets.

•We have an active program to identify potential strategic acquisitions. Our acquisitions have successfully enabled us to expand our business processes, knowledge and client relationships into adjacent markets and new geographies. During fiscal year 2019, we acquired a citizen engagement center business which

had previously been owned by General Dynamics Information Technology. This acquisition strengthens our position in the administration of government programs.

Financial Overview

Since October 1, 2018, we operated our business through three segments, U.S. Health and Human Services, U.S. Federal Services and Outside the U.S. The results for each of these segments for the three and six months ended ~~December~~March 31, ~~2018,~~2019, were affected by different factors.

•Our U.S. Health & Human Services Segment reported ~~steady~~a decline in revenue and a ~~slight improvement in profitability. This included solid operational performance across~~stablegross profit. The revenue movement was the result of the rebid or extension on a number of ~~health services contracts and a seasonally strong quarter~~large contracts. The profit margin received the benefit of $4 million of revenue from an expected contract change order including work performed in ~~our domestic consulting business.~~prior periods.

•Our U.S. Federal Services Segment reported revenue growth driven by the acquisition of the citizen engagement centers business which contributed ~~$101.3~~$176.0 million and $277.3 million in revenue in the ~~quarter. This offset~~three and six months ended March 31, 2019, respectively.The organic declines in revenue and costs were due to the completion of temporary work supporting disaster reliefs efforts, which had supplemented prior fiscal year results, as well as the anticipated ending of other contracts.The second quarter of fiscal year 2018 was tempered by a non-recurring expense to renegotiate a subcontract on a large business process outsourcing (BPS) program where we increased our scope of work. The second quarter of fiscal year 2019 received the benefit of favorable delivery on performance-based contracts.

•Our Outside the U.S. Segment reported declines in revenue and profit due primarily to declines in our welfare-to-work business in Australia and the United Kingdom, including the Work Programme and Work Choice contracts in the United Kingdom that are ending. This segment also includes ~~a significant amount of~~ discretionary spending which is passed across to the customer with no added margin, resulting in ~~increased revenue but~~ diluted profit margins.

~~Our effective tax rate was 26.2%.~~

Other effects of the citizen engagement centers acquisition on our U.S. Federal Services Segment for the six months ended March 31, 2019 are listed below.

•In addition to a payment of ~~$421.8~~$421.8 million to acquire the business, the increase in our workforce required significant additional investment in software licenses resulting in an increase of $4.5 million in property and equipment and a corresponding investing cash outflow. We have accrued a further $8.8 million to pay the estimated balance of the purchase price.

•We completed the transaction using existing cash balances and borrowed funds of $150 million. ~~This~~Although we have made steady progress in reducing our indebtedness, this resulted in an increase in interest ~~expense.~~expense and a decline in our interest income.

•Our cash flows from operations received the benefits of the increased business. At the acquisition date, the business was in a seasonally high period of the year and, accordingly, had higher than ~~usual~~average receivables from customers. In addition, the payroll obligation was lower than that at quarter end.

•Although our administrative cost base ~~will grow~~has grown to cover the needs of supporting a larger organization, our existing cost base ~~will be~~is being spread across a larger revenue base. As our general and administrative costs are allocated to our operating segments, ~~we anticipate that~~ the acquisition ~~will provide~~is providing a benefit to our profit margins in ~~the other~~all of our segments. We estimate that the full fiscal year benefit to operating margin will be 1.25% in our U.S. Health and Human Services Segment and 0.5% in our Outside the U.S. Segment.

•We incurred acquisition-related expenses of ~~$2.7 million.~~$2.7 million. These costs represent the incremental costs incurred in completing the transaction, including legal and advisory costs, integration expenses, valuation services and other consultancy costs.

•We recorded amortization for intangible assets acquired of ~~$3.0~~$10.1 million. We anticipate a full fiscal year expense of $23.6 million for fiscal year 2019.

At this time, we are still in the process of identifying and valuing the assets acquired and liabilities assumed in the purchase. This evaluation includes test work over the opening balance sheet and reviewing an appraisal of the

value of the intangible assets acquired with the business. To the extent that the value of the assets and liabilities vary from our current estimates, we may incur a different annual amortization charge and a different purchase price.

Our Outside the U.S. Segment was affected by declines in the value of local currencies against the United States Dollar, resulting in reduced revenues and profits.

~~In this quarter,~~On October 1, 2018, we adopted the requirements of the Financial Accounting Standards Board's Accounting Standard Update 2014-09, Revenue from Contracts with Customers, which changed the manner in which we recognize revenue on contracts with our customers. The adoption of this new standard resulted in a catch-up of

revenue and net income attributable to our shareholders of $47.2 million and $32.9 million, respectively, which was recorded in retained ~~earnings.~~earnings in the first quarter. If we had applied our previous accounting policies in the current period, our revenue for the three and ~~net income attributable to our shareholders~~six months ended March 31, 2019 would have been lower by approximately ~~$0.7~~ $1.0 million and ~~$0.4~~ $1.8 million, respectively.

Results of Operations

Consolidated

The following table sets forth, for the periods indicated, selected statements of operations data:


	Three Months Ended December 31,							Three Months Ended March 31,									Six Months Ended March 31,
(dollars in thousands, except per share data)	2018			2017			(dollars in thousands, except per share data)	2019			2018			2019			2018
Revenue	$	664,619		$	623,148		Revenue	$	736,520		$	612,787		$	1,401,139		$	1,235,935
Cost of revenue	505,354			471,188			Cost of revenue	567,098			463,984			1,072,452			935,172
Gross profit	159,265			151,960			Gross profit	169,422			148,803			328,687			300,763
Gross profit percentage	24.0		%	24.4		%	Gross profit percentage	23.0		%	24.3		%	23.5		%	24.3		%
Selling, general and administrative expenses	79,671			69,559			Selling, general and administrative expenses	78,102			74,879			157,773			144,438
Selling, general and administrative expense as a percentage of revenue	12.0		%	11.2		%	Selling, general and administrative expense as a percentage of revenue	10.6		%	12.2		%	11.3		%	11.7		%
Amortization of intangible assets	5,458			2,718			Amortization of intangible assets	9,519			2,603			14,977			5,321

Operating income	74,136			79,683			Operating income	81,801			71,321			155,937			151,004
Operating margin	11.2		%	12.8		%	Operating margin	11.1		%	11.6		%	11.1		%	12.2		%
Interest expense	625			168			Interest expense	1,569			157			2,194			325
Other income, net	2,045			287			Other income, net	447			1,392			2,492			1,679
Income before income taxes	75,556			79,802			Income before income taxes	80,679			72,556			156,235			152,358
Provision for income taxes	19,833			19,850			Provision for income taxes	18,913			17,450			38,746			37,300
Effective tax rate	26.2		%	24.9		%	Effective tax rate	23.4		%	24.1		%	24.8		%	24.5		%
Net income	55,723			59,952			Net income	61,766			55,106			117,489			115,058
(Loss)/income attributable to noncontrolling interests	(190		)	861			(Loss)/income attributable to noncontrolling interests	(158)			(386)			(348)			475
Net income attributable to MAXIMUS	$	55,913		$	59,091		Net income attributable to MAXIMUS	$	61,924		$	55,492		$	117,837		$	114,583
Basic earnings per share attributable to MAXIMUS	$	0.86		$	0.90		Basic earnings per share attributable to MAXIMUS	$	0.96		$	0.84		$	1.82		$	1.74
Diluted earnings per share attributable to MAXIMUS	$	0.86		$	0.89		Diluted earnings per share attributable to MAXIMUS	$	0.96		$	0.84		$	1.82		$	1.73

As our business segments have different factors driving revenue fluctuations and profitability, the sections that follow cover these segments in greater detail.

Changes in revenue, cost of revenue and gross profit for the three months ended ~~December~~March 31, ~~2018,~~2019 are summarized below.


	Revenue						Cost of Revenue						Gross Profit
(dollars in thousands)	Dollars		Percentage change		Dollars		Percentage change		Dollars		Percentage change
Balance for respective period in fiscal year 2018	$	612,787			$	463,984			$	148,803
Organic effect	(40,381)		(6.6)	%	(29,959)		(6.5)	%	(10,422)		(7.0)	%
Acquired growth	176,003		28.7	%	143,331		30.9	%	32,672		22.0	%
Currency effect compared to the prior period	(11,889)		(1.9)	%	(10,258)		(2.2)	%	(1,631)		(1.1)	%
Balance for respective period in fiscal year 2019	$	736,520	20.2	%	$	567,098	22.2	%	$	169,422	13.9	%

Revenue Cost of Revenue Gross Profit
(dollars in thousands) Dollars Percentage change Dollars Percentage change Dollars Percentage change
Balance for three months ended December 31, 2017 $ 623,148

$ 471,188

$ 151,960

Organic effect (52,642 ) (8.4 )% (41,975 ) (8.9 )% (10,667 ) (7.0 )%
Acquired growth 101,263
16.3 % 82,315
17.5 % 18,948
12.5 %
Currency effect compared to the prior period (7,150 ) (1.1 )% (6,174 ) (1.3 )% (976 ) (0.6 )%
Balance for three months ended December 2018 $ 664,619
6.7 % $ 505,354
7.3 % $ 159,265
4.8 %

Revenue and cost of revenue for the three months ended ~~December~~March 31, ~~2018,~~2019, increased ~~6.7%~~ compared to the same period in fiscal year 2018, ~~while our cost of revenue increased~~driven by ~~7.3% for the same period. These increases were driven by~~

the citizen engagement centers business ~~acquisition,~~acquisition. This was offset by organic revenue declines in all three segments and the detrimental effects of currency in our Outside the U.S. Segment. These declines were caused by rebid and extension activity within our U.S. Health and Human Services Segment and the anticipated completion of a number of contracts within our U.S. Federal Services and Outside the U.S. Segments.The factors driving these changes are covered in more detail below.

Our cost of revenue includes direct costs related to labor, subcontractor labor, outside vendors, rent and other direct costs. ~~Although movements in cost typically correlate with revenue growth, our profit margins included the benefit of revenue from contracts signed in the current year for work performed in prior years.~~

Our acquired growth represents the citizen engagement centers business, which was acquired on November 16, 2018. The two largest contracts included in the transaction are both cost-plus type contracts. Cost-plus contracts typically have lower financial risk but typically earn margins in the mid-single digits.

We operate in a number of locations where the functional currency is not the U.S. Dollar. During the three months ended ~~December~~March 31, ~~2018,~~2019, the value of all of these currencies was lower than ~~they were~~ in the comparative period in fiscal year 2018. This had a negative impact on revenue and costs.

Changes in revenue, cost of revenue and gross profit for the six months ended March 31, 2019 are summarized below.


	Revenue						Cost of Revenue						Gross Profit
(dollars in thousands)	Dollars		Percentage change		Dollars		Percentage change		Dollars		Percentage change
Balance for respective period in fiscal year 2018	$	1,235,935			$	935,172			$	300,763
Organic effect	(93,023)		(7.5)	%	(71,933)		(7.7)	%	(21,090)		(7.0)	%
Acquired growth	277,266		22.4	%	225,646		24.1	%	51,620		17.2	%
Currency effect compared to the prior period	(19,039)		(1.5)	%	(16,433)		(1.8)	%	(2,606)		(0.9)	%
Balance for respective period in fiscal year 2019	$	1,401,139	13.4	%	$	1,072,452	14.7	%	$	328,687	9.3	%

The factors impacting revenue and cost of revenue for the six months ended March 31, 2019 are similar to those affecting the three month period.

Selling, general and administrative expense (SG&A) consists 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, rational basis. Fluctuations in our SG&A are 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 United States Federal Government and many states, we allocate these costs using a methodology driven by the Federal Cost Accounting Standards. Our SG&A expense has increased year-over-year due to the acquisition of the citizen engagement centers business, which has added an additional level of infrastructure as well as approximately ~~$2.7~~$2.7 million of one-time expenses directly related to the transaction. In the first quarter of the current fiscal year, we introduced an early

retirement program for employees that met certain criteria. As a result, severance payments in the ~~three~~six months ended ~~December~~March 31, ~~2018~~2019 were unusually high and raised SG&A by approximately $4 million. This program should deliver increased efficiency in future periods.

Our results ~~in fiscal year~~for the six months ended March 31, 2019 include ~~$3.0~~$10.1 million of amortization from assets acquired with the citizen engagement centers business.

Our interest expense is driven by borrowings from our credit facility. During the three months ended December 31, 2017, we incurred expenses from ~~some~~ short-term borrowings to cover working capital obligations, as well as the costs of maintaining the facility. No borrowings were incurred during fiscal year 2019 until November 16, 2018, when $150 million was drawn for the acquisition of the citizen engagement centers business.

Our effective tax rate for the ~~three~~six months ended ~~December~~March 31, ~~2018,~~2019, was ~~26.2%~~24.8%, compared to ~~24.9%~~24.5% in the same period in fiscal year 2018. Our results in fiscal year 2019 benefited from the effects of the Tax Cuts and Jobs Act (the Act), which reduced the U.S. federal income tax rate to 21%. We recognized the effects of the Act during fiscal year 2018, specifically the re-measurement of our deferred tax assets and liabilities as well as impact of the one-time "toll tax" on the undistributed, non-previously taxed foreign earnings of our subsidiaries, resulting in a net benefit of approximately $1.1 million. We have completed our analysis of these items and have not recorded any adjustments in this period.

Our effective income tax rate for fiscal year 2019 is projected to be in the range of 25% to ~~26%~~25.5%.

During our second and fourth fiscal quarters, we ~~will~~ receive the tax benefit from the vesting of restricted stock units (RSUs). The benefit is dependent upon the number of RSUs which vest as well as our share price on the vesting date. During the three months ended March 31, 2019 and 2018, we received tax benefits of $1.7 million from the issuance of restricted stock unit awards which had been previously deferred by members of our Board of Directors.

U.S. Health & Human Services Segment

Our U.S. Health and Human Services Segment provides a variety of business process services such as program administration, appeals and assessments work and related consulting work for U.S. state and local government programs. These services support a variety of programs including Medicaid, the Children’s Health Insurance Program, the Affordable Care Act and Temporary Assistance for Needy Families.


	Three Months Ended March 31,									Six Months Ended March 31,
(dollars in thousands)	2019			2018			2019			2018
Revenue	$	290,737		$	306,249		$	584,950		$	610,490
Cost of revenue	204,477			219,663			410,659			439,673
Gross profit	86,260			86,586			174,291			170,817
Operating income	56,860			49,970			112,752			99,396
Gross profit percentage	29.7		%	28.3		%	29.8		%	28.0		%
Operating margin percentage	19.6		%	16.3		%	19.3		%	16.3		%

Three Months Ended December 31,
(dollars in thousands) 2018 2017
Revenue $ 294,213
$ 304,241
Cost of revenue 206,182
220,010
Gross profit 88,031
84,231
Operating income 55,892
49,426
Gross profit percentage 29.9 % 27.7 %
Operating margin percentage 19.0 % 16.2 %

Our revenue and cost of revenue for the three month period ended ~~December~~March 31, ~~2018,~~2019 decreased ~~by 3.3%~~5.1% and 6.9%, respectively, compared to the same period in fiscal year 2018. ~~Cost~~Our revenue and cost of revenue for the six month period ended March 31, 2019, decreased by ~~6.3%.~~4.2% and 6.6%, respectively, compared to the same period in fiscal year 2018. All movements were organic.

~~Our results for the three months ended December 31,~~During fiscal years 2019 and 2018, ~~benefited from strong operational performance across~~we rebid or extended a number of ~~health services~~large contracts ~~as well as~~with our customers, resulting in reduced contract revenue and profit. It is not unusual that during a ~~seasonally strong quarter from our consulting~~bid or sole-source extension of a contract, we negotiate a revenue reduction in order to retain the business. ~~While a strong quarter on~~This may be short term in nature and, over the ~~bottom line, revenue was tempered principally due to~~life of the ~~reset of certain larger contracts that were rebid or extended.~~

~~The U.S. segment is a strong portfolio of contracts and when the circumstances are favorable,~~contract, we can ~~see margins~~improve revenue and profit through scope increases and operating efficiencies.

Our gross profit includes a benefit of $4.0 million from a single contract amendment signed in the ~~high teens.~~ second quarter of fiscal year 2019 but for which costs had been incurred in earlier periods. Our operating profit margins also received the benefit of the cost synergies from the acquisition of the citizen engagement centers business.

We anticipate ~~that~~operating margin for the segment will ~~range~~be between ~~operating margins of 16% to~~ 17% and 19% ~~over the course of the~~ for fiscal ~~year.~~year 2019.

U.S. Federal Services Segment

Our U.S. Federal Services Segment provides business process solutions, including program administration, appeals and assessment services as well as system and software development and maintenance services for various U.S. federal civilian programs. This segment also contains certain state-based assessments and appeals work that is part of the segment's heritage within the Medicare Appeals portfolio and continues to be managed within this segment.


	Three Months Ended March 31,									Six Months Ended March 31,
(dollars in thousands)	2019			2018			2019			2018
Revenue	$	289,736		$	116,327		$	506,723		$	249,310
Cost of revenue	229,040			88,953			398,042			188,578
Gross profit	60,696			27,374			108,681			60,732
Operating income	29,592			9,834			50,945			26,544
Gross profit percentage	20.9		%	23.5		%	21.4		%	24.4		%
Operating margin percentage	10.2		%	8.5		%	10.1		%	10.6		%

Three Months Ended December 31,
(dollars in thousands) 2018 2017
Revenue $ 216,987
$ 132,983
Cost of revenue 169,002
99,625
Gross profit 47,985
33,358
Operating income 21,353
16,710
Gross profit percentage 22.1 % 25.1 %
Operating margin percentage 9.8 % 12.6 %

Changes in revenue, cost of revenue and gross profit for the three months ended ~~December~~March 31, ~~2018,~~2019, are summarized below.


	Revenue						Cost of Revenue						Gross Profit
(dollars in thousands)	Dollars		Percentage change		Dollars		Percentage change		Dollars		Percentage change
Balance for respective period in fiscal year 2018	$	116,327			$	88,953			$	27,374
Organic effect	(2,594)		(2.2)	%	(3,244)		(3.6)	%	650		2.4	%
Acquired growth	176,003		151.3	%	143,331		161.1	%	32,672		119.4	%
Balance for respective period in fiscal year 2019	$	289,736	149.1	%	$	229,040	157.5	%	$	60,696	121.7	%

Revenue Cost of Revenue Gross Profit
(dollars in thousands) Dollars Percentage change Dollars Percentage change Dollars Percentage change
Balance for three months ended December 31, 2017 $ 132,983

$ 99,625

$ 33,358

Organic effect (17,259 ) (13.0 )% (12,938 ) (13.0 )% (4,321 ) (13.0 )%
Acquired growth 101,263
76.1 % 82,315
82.6 % 18,948
56.8 %
Balance for three months ended December 31, 2018 $ 216,987
63.2 % $ 169,002
69.6 % $ 47,985
43.8 %

Changes in revenue, cost of revenue and gross profit for the six months ended March 31, 2019 are summarized below.


	Revenue						Cost of Revenue						Gross Profit
(dollars in thousands)	Dollars		Percentage change		Dollars		Percentage change		Dollars		Percentage change
Balance for respective period in fiscal year 2018	$	249,310			$	188,578			$	60,732
Organic effect	(19,853)		(8.0)	%	(16,182)		(8.6)	%	(3,671)		(6.0)	%
Acquired growth	277,266		111.2	%	225,646		119.7	%	51,620		85.0	%
Balance for respective period in fiscal year 2019	$	506,723	103.3	%	$	398,042	111.1	%	$	108,681	79.0	%

Growth was driven by ~~the acquisition of~~ the citizen engagement centers business, which was acquired on November 16, 2018. The two largest acquired contracts which are cost-plus ~~arrangements;~~arrangements and, accordingly, the profit margin is lower than the existing business which includes fixed fee and transaction-based work. We anticipate that operating ~~margins~~margin will be approximately 10% for the full fiscal year. For the second quarter of 2019, operating margin was strong and

driven by favorable results on several performance based contracts and is higher compared to the same period in 2018 which was tempered by a non-recurring expense to renegotiate a subcontract on a large BPS contract where we increased our scope of work.

One of the contracts noted above covers the operation of the United States Decennial Census. We anticipate revenues from this contract of approximately $200 million and $350 million for fiscal years 2019 and 2020, respectively. Although the contract continues through June 2021, we do not anticipate a material amount of revenue in fiscal year 2021. These estimates are based upon our expectations of the contract at this time which may change through contract performance or changes to the contract.

Our organic business has declined since last fiscal year. This ~~has been~~was caused ~~by the~~ by:

•The anticipated ~~completion~~ending of certain contracts;

•The rebid of contracts ~~including work~~ acquired in 2015 ~~with Acentia, LLC,~~under the small business rules which ~~was reserved for small businesses~~we were not eligible to rebid for; and

•The absence of some short-term disaster relief work which ~~precluded us from bidding for the successor contract. Fiscal~~had improved our results in fiscal year 2018.

Our profit margins in fiscal year 2018 ~~also included short-term, accretive work~~were tempered by a charge of $2.9 million related to ~~disaster relief efforts.~~costs incurred in renegotiating a subcontract.

~~The financial impact of the~~The U.S. Federal ~~government~~Government shutdown ~~to MAXIMUS was approximately $0.5 million~~ in ~~revenue in the first quarter~~December 2018 and ~~is expected to be approximately $0.5 million in revenue in the second quarter. We~~January 2019 did not have ~~been managing our cost of revenue during the shutdown to mitigate the~~a significant effect on our ~~profit.~~business.

Outside the United States Segment

Our Outside the U.S. Segment provides business process solutions for governments and commercial clients outside the United States, including health and disability assessments, program administration for welfare-to-work services and other related services. We support programs and deliver services in the United Kingdom, including the Health Assessment Advisory Service, the Work & Health Programme and Fair Start; Australia, including jobactive and the Disability Employment Service; Canada, including Health Insurance British Columbia and the Employment Program of British Columbia; Saudi Arabia and Singapore.


	Three Months Ended March 31,									Six Months Ended March 31,
(dollars in thousands)	2019			2018			2019			2018
Revenue	$	156,047		$	190,211		$	309,466		$	376,135
Cost of revenue	133,581			155,368			263,751			306,921
Gross profit	22,466			34,843			45,715			69,214
Operating income	4,474			16,440			8,915			32,705
Gross profit percentage	14.4		%	18.3		%	14.8		%	18.4		%
Operating margin percentage	2.9		%	8.6		%	2.9		%	8.7		%

Three Months Ended December 31,
(dollars in thousands) 2018 2017
Revenue $ 153,419
$ 185,924
Cost of revenue 130,170
151,553
Gross profit 23,249
34,371
Operating income 4,441
16,265
Gross profit percentage 15.2 % 18.5 %
Operating margin percentage 2.9 % 8.7 %

Changes in revenue, cost of revenue and gross profit for the three months ended ~~December~~March 31, ~~2018,~~2019, are summarized below.


	Revenue						Cost of Revenue						Gross Profit
(dollars in thousands)	Dollars		Percentage change		Dollars		Percentage change		Dollars		Percentage change
Balance for respective period in fiscal year 2018	$	190,211			$	155,368			$	34,843
Organic effect	(22,275)		(11.7)	%	(11,529)		(7.4)	%	(10,746)		(30.8)	%

Currency effect compared to the prior period	(11,889)		(6.3)	%	(10,258)		(6.6)	%	(1,631)		(4.7)	%
Balance for respective period in fiscal year 2019	$	156,047	(18.0)	%	133,581		(14.0)	%	22,466		(35.5)	%

Revenue Cost of Revenue Gross Profit
(dollars in thousands) Dollars Percentage change Dollars Percentage change Dollars Percentage change
Balance for three months ended December 31, 2017 $ 185,924

$ 151,553

$ 34,371

Organic effect (25,355 ) (13.6 )% (15,209 ) (10.0 )% (10,146 ) (29.5 )%
Currency effect compared to the prior period (7,150 ) (3.8 )% (6,174 ) (4.1 )% (976 ) (2.8 )%
Balance for the three months ended December 31, 2018 $ 153,419
(17.5 )% $ 130,170
(14.1 )% $ 23,249
(32.4 )%
Changes in revenue, cost of revenue and gross profit for the six months ended March 31, 2019, are summarized below.


	Revenue						Cost of Revenue						Gross Profit
(dollars in thousands)	Dollars		Percentage change		Dollars		Percentage change		Dollars		Percentage change
Balance for respective period in fiscal year 2018	$	376,135			$	306,921			$	69,214
Organic effect	(47,630)		(12.7)	%	(26,737)		(8.7)	%	(20,893)		(30.2)	%

Currency effect compared to the prior period	(19,039)		(5.1)	%	(16,433)		(5.4)	%	(2,606)		(3.8)	%
Balance for respective period in fiscal year 2019	$	309,466	(17.7)	%	$	263,751	(14.1)	%	$	45,715	(34.0)	%

Our revenue for the three month period ended ~~December~~March 31, ~~2018,~~2019, decreased by ~~17%~~18% compared to the same period in fiscal year 2018. On a constant currency basis revenue decreased by ~~14%.The decrease is due to the expected reduction in welfare-to-work contracts including the Work Programme and the Work Choice contracts in the U.K that are set to end in 2019.~~13%. Cost of revenue decreased by 14% compared to the same period in fiscal year 2018.

In fiscal year 2019, the Work Programme and Work Choice Programme contracts in the United Kingdom are ending. As a result, revenue from these contracts is expected to be lower in fiscal year 2019 by approximately $35 million compared to fiscal year 2018. These contracts have been replaced by new programs that were devolved to the local authorities. In fiscal year 2018, we began operations in Wales, East London and Scotland to provide health and employment services to vulnerable populations with disabilities and complex health conditions. As is often the case with new contracts, we have experienced challenges in the early months of this contract but have taken significant steps to address these with additional resources and investment to augment our efforts and we expect these contracts, in aggregate to break even in the fourth quarter of fiscal year 2019.

The second quarter of fiscal year 2018 included a one-time profit pick-up related to the termination of major elements of the Fit for Work contract. For fiscal year 2019, we anticipate operating margin for the segmentwill be between 3% and4%.

Approximately half of our revenue within the Outside the U.S. Segment is generated through contracts within the United Kingdom, most of which are with government agencies. As such, we are closely monitoring developments as the United Kingdom Government negotiates a withdrawal from the European Union. We do not anticipate a material direct effect on our business in the United Kingdom due to Brexit due to the nature of our customer base and the absence of cross-border operations. However, regardless of the nature and timing of the withdrawal, the uncertainty over the process and the eventual outcome is affecting us indirectly. We anticipate we will continue to ~~see~~be subject to political risks, as legislative priorities may change, the ~~effects of low unemployment in our geographies, which has resulted in lower volumes on our employment services contracts. Employment services represents approximately half of~~economic risks from the ~~work in the segment, which has created challenges in maintaining revenue~~pre- and profit levels. To the extent we continue to see a robust global economy with a low level of unemployment, we expect to continue to see depressed profit margins. We have taken measures to reduce our costspost-withdrawal environment, and we ~~have been managing our cost of revenue to the extent our contracts allow. We anticipate operating margins for the remainder of the year to be~~may, along with other businesses, experience difficulty in ~~the 3% to 5% range.~~recruiting and retaining employees.

Liquidity and Capital Resources

Our principal source of liquidity remains our cash flows from operations. These cash flows are used to fund our ongoing operations and working capital needs as well as investments in capital infrastructure and purchases of our own common stock. These operating cash flows are driven by our contracts and their payment terms. For many contracts, we are reimbursed for the costs of startup operations, although there may be a gap between incurring and receiving these funds. Other factors which may cause shortfalls in cash flows include contract terms where payments are tied to outcome deliveries, which may not correspond with the costs incurred to achieve these outcomes and short-term delays where government budgets are constrained.

To supplement our operating cash flows, we maintain and utilize our credit facility which allows us to borrow up to $400 million, subject to standard covenants. In November 2018, we utilized $150 million of borrowing to acquire the citizen engagement centers business, with the balance from existing cash balances. We continue to use our facility to manage our working capital requirements but believe that our cash flows from operations are typically sufficient to fund our operations. At ~~December~~March 31, ~~2018,~~2019, our borrowings under the facility were ~~$120~~$75.0 million. During April 2019, we repaid these borrowings in full.

Our priorities for cash utilization are to actively pursue new growth opportunities, to maintain our quarterly dividend program and, where opportunities arise, to make purchases of our own shares.

We have no requirement to remit funds from our foreign locations back to the United States. However, where remitting these funds is possible and can be performed in a ~~tax-free~~tax-efficient manner, we will do so. With the passage of the Tax Cuts and Jobs Act in the United States, we are able to transfer a significant amount of funds from our foreign locations on a tax-free basis. We will continue to explore opportunities to ~~bring back additional~~make funds available for investment, taking into consideration the working capital requirements and relevant tax rules in each jurisdiction. Where 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 which 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. At ~~December~~March 31, ~~2018,~~2019, we held ~~$28.9~~$43.4 million in ~~funds~~cash or cash equivalents held in foreign locations in local currencies.

Cash Flows

The following table provides a summary of our cash flow information for the ~~three~~six months ended ~~December~~March 31, ~~2018~~2019 and ~~2017.~~2018.


	Six Months Ended March 31,
(dollars in thousands)	2019		2018
Net cash provided by/(used in):
Operations	$	127,211	$	116,760
Investing activities	(420,070)		(12,791)
Financing activities	(8,590)		(17,631)
Effect of exchange rate changes on cash and cash equivalents	(632)		1,070
Net (decrease)/increase in cash, cash equivalents and restricted cash	$	(302,081)	$	87,408

Three Months Ended December 31,
(dollars in thousands) 2018 2017
Net cash provided by/(used in):

Operations $ 59,340
$ 37,997
Investing activities (411,739 ) (6,455 )
Financing activities 59,002
(970 )
Effect of exchange rate changes on cash and cash equivalents (1,068 ) 203
Net (decrease)/increase in cash, cash equivalents and restricted cash $ (294,465 ) $ 30,775

The factors influencing cash flows from operations are the effect of the acquired business, ~~our cash collections and~~ our annual management bonus ~~payments.~~payments and the timing of our tax payments.

•The citizen engagement centers business has increased both our revenues and costs, resulting in additional net cash inflows. ~~The acquisition occurred at a point when receivables were seasonally high.~~

~~Our cash collections in the three months ended December 31, 2018, were adversely impacted by delays in payment on a single, significant customer.~~

•We pay our annual management bonus during the first ~~fiscal~~ quarter of each fiscal year. The amount paid in fiscal year 2019 was lower than that paid in fiscal year 2018.

•Our tax payments in the current fiscal year were $37.2 million, compared to $28.5 million in fiscal year 2018.

Our Days Sales Outstanding (DSO) at ~~December~~March 31, ~~2018,~~2019, were 7377 days; the balance at September 30, 2018, was 63 days. Our DSO calculation now includes unbilled balances ~~from~~due to the adoption of ASC 606 ~~which had previously not been recorded; absent~~.Absent this effect, our DSO would have been 6973 days. Our receivable balances at March 31, 2019, include receivables from our Census contract, which is undergoing a quick ramp-up to prepare for activities, and, accordingly, will continue to experience growing receivable balances. Going forward, we believe ~~this~~the increase to DSO from the adoption of ASC 606 will be offset by more timely collections on the newly acquired U.S. Federal contracts. We use DSO to evaluate our performance in collecting our receivable balances, both billed and unbilled. We have a target range for DSO of 65 to 80 days and we have typically maintained the lower end of this range in recent years.

Cash used in investing activities for the ~~three~~six months ended ~~December~~March 31, ~~2018,~~2019, was ~~$411.7~~$420.1 million compared to ~~$6.5~~$12.8 million in the same period last year. This includes our initial payment of $421.8 million for the acquisition of the citizen engagement centers business; the purchase agreement is subject to a working capital true up. We anticipate an additional payment of approximately ~~$7.5~~$8.8 million in our ~~second~~third fiscal quarter. Our capital expenditures also included $4.5 million in one-time payments to cover software licenses required for employees joining us from the citizen engagement centers acquisition.

Cash ~~provided by~~used in financing activities in the ~~three~~six months ended ~~December~~March 31, ~~2018,~~2019, was ~~$59.0~~$8.6 million, compared to ~~cash used of $1.0~~$17.6 million in the comparative period. ~~In addition to~~For the ~~borrowing~~acquisition of ~~$150 million for~~ the citizen engagement centers business, we utilized $150 million from our credit facility; we had repaid half of this balance by March 31, 2019. In fiscal year 2019, we used ~~$41.0~~$46.1 million to purchase our common stock, compared with $1.0 million in fiscal year 2018, and a further ~~$16.0~~$32.0 million to pay our quarterly dividend. Our dividend payment represents a payment of $0.25 per share per quarter, compared with $0.045 per share in the prior ~~quarters.~~year.

To supplement our statements of cash flows presented on a GAAP basis, we use the measure of free cash flow to analyze the funds generated from operations.


	Three Months Ended December 31,							Six Months Ended March 31,
(dollars in thousands)	2018			2017			(dollars in thousands)	2019		2018
Cash flows from operations	$	59,340		$	37,997		Cash flows from operations	$	127,211	$	116,760
Purchases of property and equipment and capitalized software costs	(9,973		)	(6,514		)	Purchases of property and equipment and capitalized software costs	(18,541)		(13,175)
Capital expenditure as a result of acquisition (1)	4,542			—			Capital expenditure as a result of acquisition (1)	4,542		—
Free cash flow	$	53,909		$	31,483		Free cash flow	$	113,212	$	103,585

(1) Purchases of property and equipment and capitalized software costs included $4.5 million in one time payments to cover software licenses required for employees joining us through the citizen engagement centers acquisition.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements 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. On an ongoing basis we evaluate our estimates, including those related to revenue recognition and cost estimation on certain contracts, the realizability of goodwill and other long-lived assets, and amounts related to contingencies and income tax liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates.

During the ~~three~~six months ended ~~December~~March 31, ~~2018,~~2019, we made changes to the manner in which we recognize revenue. This has resulted in a need for additional estimates. For additional information, please see "Note 3. Revenue recognition" in our "Notes to Unaudited Consolidated Financial Statements" in Item 1 of this Form 10-Q.

Non-GAAP Measures

We utilize ~~non‑~~non-GAAP measures where we believe it will assist the user 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 operations or net income 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.

In fiscal year 2018, 29% 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 which 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. We refer to this adjusted revenue on a "constant currency basis."

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. We provide organic revenue growth as a useful basis for assessing this. To calculate organic revenue growth, we compare current fiscal year revenue excluding revenue from these acquisitions to our prior fiscal year revenue.

In order to sustain our cash flows from operations, we require regular refreshing of 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 which 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 the Company’s operations and replacement capital expenditures and excludes the cash flow effects of acquisitions, purchases of our own common stock, dividend payments and other financing transactions. We have provided a reconciliation of free cash flow to cash provided by operations.

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. To reflect the effect of the citizen engagement centers business, we prorated the revenue from this acquisition across the full quarter to calculate our DSO for the three months ended December 31, 2018.

As noted above, we have access to a $400 million credit facility. Our credit agreement includes the defined term Consolidated EBITDA and our calculation of Adjusted EBITDA conforms to the credit agreement definition. 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 which 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. Our credit facility requires us to calculate Adjusted EBITDA on a pro forma basis as though we had owned any acquired business for a full twelve month period prior to the acquisition. We have provided a reconciliation from net income to Adjusted EBITA, Adjusted EBITDA and Pro Forma Adjusted EBITDA as follows:


	Six Months Ended March 31,						Trailing Twelve Months Ended March 31,
(dollars in thousands)	2019		2018		2019		2018
Net income attributable to MAXIMUS	$	117,837	$	114,583	$	224,005	$	224,830
Interest (income)/expense, net	79		(900)		(1,612)		(1,764)
Provision of income taxes	38,746		37,300		79,839		85,581
Amortization of intangible assets	14,977		5,321		19,964		10,741
Stock compensation expense	9,904		11,324		18,818		22,455
Acquisition-related expenses	2,850		—		3,797		83
Gain on sale of a business	—		—		—		(650)
Adjusted EBITA	$	184,393	$	167,628	$	344,811	$	341,276
Depreciation and amortization of property, plant, equipment and capitalized software	22,407		27,074		47,217		52,876
Adjusted EBITDA	$	206,800	$	194,702	$	392,028	$	394,152
Additional adjusted EBITDA related to citizen engagement centers acquisition	6,695				16,158
Pro Forma Adjusted EBITDA	$	213,495			$	408,186

Three Months Ended
December 31, Trailing Twelve Months Ended
December 31,
(dollars in thousands) 2018 2017 2018 2017
Net income attributable to MAXIMUS $ 55,913
$ 59,091
$ 217,573
$ 221,853
Interest (income)/expense, net (957 ) (258 ) (3,290 ) (625 )
Provision of income taxes 19,833
19,850
78,376
95,042
Amortization of intangible assets 5,458
2,718
13,048
11,524
Stock compensation expense 4,971
5,402
19,807
21,878
Acquisition-related expenses 2,690
—
3,637
83
Gain on sale of a business —
—
—
(650 )
Adjusted EBITA $ 87,908
$ 86,803
$ 329,151
$ 349,105
Depreciation and amortization of property, plant, equipment and capitalized software 11,231
13,719
49,396
54,926
Adjusted EBITDA $ 99,139
$ 100,522
$ 378,547
$ 404,031
Additional adjusted EBITDA related to citizen engagement centers acquisition 6,695
28,330

Pro Forma Adjusted EBITDA $ 105,834
$ 406,877

Item 3.Quantitative and Qualitative Disclosures about Market Risk.

Our exposure to market risks generally relates to changes in foreign currency exchange rates.

At ~~December~~March 31, ~~2018,~~2019, and September 30, 2018, we held net assets denominated in currencies other than the U.S. Dollar of ~~$111.2~~$117.3 million and $100.3 million, respectively. Of these balances, cash and cash equivalents comprised ~~$28.9~~$43.4 million and $46.4 million, respectively. Accordingly, in the event of a 10% unfavorable exchange rate movement across these currencies, we would have reported the following incremental effects on our comprehensive income and our cash flow statement (in thousands).


	March 31, 2019		September 30, 2018
Comprehensive income attributable to MAXIMUS	$	(11,730)	$	(10,030)
Net decrease in cash and cash equivalents	(4,336)		(4,640)

December 31, 2018 September 30, 2018
Comprehensive income attributable to MAXIMUS $ (11,122 ) $ (10,030 )
Net decrease in cash and cash equivalents (2,893 ) (4,640 )

Included within our net assets held in international currency are assets which we consider to be monetary assets — those which hold a fair value close to their book value and which represent a recent cash outflow or which will become a cash inflow or outflow within a short period of time. These assets and liabilities are typically cash, billed, billable and unbilled accounts receivable, current prepaid expenses, accounts payable, accrued compensation, deferred revenue and debt. At ~~December~~March 31, ~~2018,~~2019, the net value of these assets and liabilities was ~~$85.5~~ $94.4 million.

Where possible, we identify surplus funds in foreign locations and place them into entities with the U.S. Dollar as their functional currency. This mitigates our exposure to foreign currencies. We mitigate our foreign currency exchange risks within our operating divisions through incurring costs and cash outflows in the same currency as our revenue.

We are exposed to interest rate risk through our revolving credit facility and other short term borrowings. At ~~December~~March 31, ~~2018,~~2019, we had borrowings of ~~$125.4~~$79.0 million. Our interest rate is based upon the one-month London Interbank Offering Rate (LIBOR) or equivalent plus a premium based upon our leverage; this premium is currently 1%. The one-month LIBOR at ~~December~~March 31, ~~2018,~~2019, was approximately ~~2.5%~~2.5%. A hypothetical increase in interest rates to ~~3.5%~~3.5% would increase our annual interest expense and cash flows by approximately ~~$1.3~~ $0.8 million.

Item 4.Controls and Procedures.

(a)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.

(b)Changes in Internal Control over Financial Reporting

With the exception of the matters noted below, 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.

From October 2018, we have made changes to our accounting for revenue based upon changes in accounting principles. These changes have required updates and additions to our existing controls which have been implemented in the current fiscal year.

In November 2018, we acquired the citizen engagement centers business from General Dynamics Information Technology. We are in the process of integrating this business into our existing control environment.

PART II. OTHER INFORMATION

Item 1.Legal Proceedings.

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 the United States Federal Government, 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 disbarment. 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 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.

Securities class action lawsuit

In August 2017, the Company and certain officers were named as defendants in a putative class action lawsuit filed in the U.S. District Court for the Eastern District of Virginia. The plaintiff alleged the defendants made a variety of materially false and misleading statements, or failed to disclose material information, concerning the status of the Company’s Health Assessment Advisory Service project for the U.K. Department for Work and Pensions from the period of October 20, 2014, through February 3, 2016. In August 2018, ~~the defendants’~~our motion to dismiss the case was granted, and the case was dismissed. In October 2018, the plaintiffs filed a notice of appeal to the U.S. Circuit Court for the Fourth Circuit. That appeal is pending. At this time, it is not possible to reasonably predict whether this matter will be permitted to proceed as a class or to reasonably estimate the value of the claims asserted, and we are unable to estimate the potential loss or range of loss.

Medicaid claims

A state Medicaid agency has been notified of two proposed disallowances by the Centers for Medicare and Medicaid Services (CMS) totaling approximately $31 million. From 2004 through 2009, we had a contract with the state agency in support of its school-based Medicaid claims. We entered into separate agreements with the school districts under which we assisted the districts with preparing and submitting claims to the state Medicaid agency which, in turn, submitted claims for reimbursement to CMS. The state has asserted that its agreement with us requires us to reimburse the state for the amounts owed to CMS. However, our agreements with the school districts require them to reimburse us for such amounts, and therefore we believe the school districts are responsible for any amounts that ultimately must be refunded to CMS. Although it is reasonably possible that a court could conclude we are responsible for the full balance of the disallowances, we believe our exposure in this matter is limited to our fees associated with this work and that the school districts will be responsible for the remainder. We have ~~established a reserve to cover~~reserved our estimated fees earned from this engagement relating to the ~~disallowances.~~disallowances. We exited the federal healthcare-claiming business in 2009 and no longer provide the services at issue in this matter. No legal action has been initiated against us.

Item 1A.Risk Factors.

In connection with information set forth in this Form 10-Q, the factors discussed under “Risk Factors” in our Form 10-K for fiscal year ended September 30, 2018, should be considered. The risks included in the Form 10-K could materially and adversely affect our business, financial condition and results of operations. There have been no material changes to the factors discussed in our Annual Report on Form 10-K for the year ended September 30, 2018, which was filed with the Securities and Exchange Commission on November 20, 2018.

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

(c) The following table sets forth the information required regarding purchases of common stock that we made during the three months ended ~~December~~March 31, ~~2018:~~2019:


Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans (1)	Approximate Dollar Value of Shares that may yet be Purchased Under the Plan (in thousands)
Jan. 1, 2019 - Jan. 31, 2019	61,900	$	66.04	61,900	$	147,420

Feb. 1, 2019 - Feb. 28, 2019	—	—		—	147,420

Mar. 1, 2019 - Mar. 31, 2019	—	—		—	147,420

Total	61,900	$	66.04	61,900

(1) Under a resolutions adopted in June 2018, the Board of Directors authorized the repurchase, at management’s discretion, of up to an aggregate of $200 million of our common stock. This resolution also authorized the use of option exercise proceeds for the purchase of our common stock.

Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans (1) Approximate Dollar Value of Shares that may yet be Purchased Under the Plan (in thousands)
Oct. 1, 2018 - Oct. 31, 2018 192,300
$ 63.47
192,300
$ 180,612

Nov. 1, 2018 - Nov. 30, 2018 134,581
$ 63.31
134,581
$ 172,092

Dec. 1, 2018 - Dec. 31, 2018 323,420
$ 63.64
323,420
$ 151,509

Total 650,301
$ 63.52
650,301


~~(1)~~	Under a resolutions adopted in June 2018, the Board of Directors authorized the repurchase, at management’s discretion, of up to an aggregate of $200 million of our common stock. This resolution also authorized the use of option exercise proceeds for the purchase of our common stock.

Item 6.Exhibits.

Exhibit No.

Description

2.1

Asset Purchase Agreement dated as of October 5, 2018, by and among General Dynamics Information Technology, Inc., MAXIMUS Federal Services, Inc. and MAXIMUS, Inc. (incorporated by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K dated October 9, 2018).

31.1

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Section 906 Principal Executive Officer Certification.

32.2

Section 906 Principal Financial Officer Certification.

101

The following materials from the MAXIMUS, Inc. Quarterly Report on Form 10-Q for the quarter ended ~~December~~March 31, ~~2018~~2019 formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Statements of Operations, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Cash Flows, (v) Consolidated Statements of Changes in Shareholders’ Equity and (vi) Notes to Consolidated Financial Statements. Filed electronically herewith.


s	~~Filed herewith.~~


v	~~Furnished herewith.~~

s Filed herewith.

v Furnished herewith.

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.

Date: May 9, 2019			~~MAXIMUS, INC.~~
By:
~~Date: February 7, 2019~~	~~By:~~	/s/ Richard J. Nadeau
				Richard J. Nadeau
				Chief Financial Officer
				(On behalf of the registrant and as Principal Financial and Accounting Officer)



Virginia						54-1000588
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

1891 Metro Center Drive, Reston, Virginia						20190
(Address of principal executive offices)						(Zip Code)



Large accelerated filer ý						Accelerated filer o

Non-accelerated filer o						Smaller reporting company o

						Emerging growth company o


	December 31, 2018			September 30, 2018				March 31, 2019		September 30, 2018
	(unaudited)							(unaudited)
ASSETS							ASSETS
Current assets:							Current assets:
Cash and cash equivalents	$	54,736		$	349,245		Cash and cash equivalents	$	46,799	$	349,245
Short-term investments	—			20,264			Short-term investments	—		20,264
Accounts receivable — billed and billable, net of reserves of $6,430 and $4,285	486,922			357,613
Accounts receivable — billed and billable, net of reserves of $6,073 and $4,285							Accounts receivable — billed and billable, net of reserves of $6,073 and $4,285	491,560		357,613
Accounts receivable — unbilled	124,385			31,536			Accounts receivable — unbilled	131,250		31,536
Income taxes receivable	7,066			5,979			Income taxes receivable	20,733		5,979
Prepaid expenses and other current assets	49,915			43,995			Prepaid expenses and other current assets	49,668		43,995
Total current assets	723,024			808,632			Total current assets	740,010		808,632
Property and equipment, net	81,352			77,544			Property and equipment, net	76,693		77,544
Capitalized software, net	22,773			22,429			Capitalized software, net	25,232		22,429
Goodwill	585,735			399,882			Goodwill	587,751		399,882
Intangible assets, net	204,553			88,035			Intangible assets, net	195,354		88,035
Deferred contract costs, net	16,049			14,380			Deferred contract costs, net	19,771		14,380
Deferred compensation plan assets	28,970			34,305			Deferred compensation plan assets	32,387		34,305
Deferred income taxes	209			6,834			Deferred income taxes	209		6,834
Other assets	6,637			9,959			Other assets	10,309		9,959
Total assets	$	1,669,302		$	1,462,000		Total assets	$	1,687,716	$	1,462,000
LIABILITIES AND SHAREHOLDERS’ EQUITY							LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:							Current liabilities:
Accounts payable and accrued liabilities	$	152,532		$	114,378		Accounts payable and accrued liabilities	$	169,099	$	114,378
Accrued compensation and benefits	97,563			95,555			Accrued compensation and benefits	87,698		95,555
Deferred revenue	37,231			51,182			Deferred revenue	39,215		51,182
Income taxes payable	2,302			4,438			Income taxes payable	3,159		4,438
Current portion of long-term debt and other borrowings	5,124			136			Current portion of long-term debt and other borrowings	3,681		136
Other liabilities	17,474			11,760			Other liabilities	17,909		11,760
Total current liabilities	312,226			277,449			Total current liabilities	320,761		277,449
Deferred revenue, less current portion	22,275			20,394			Deferred revenue, less current portion	24,910		20,394
Deferred income taxes	49,617			26,377			Deferred income taxes	51,060		26,377
Long-term debt	120,321			374			Long-term debt	75,295		374
Deferred compensation plan liabilities, less current portion	31,769			33,497			Deferred compensation plan liabilities, less current portion	32,622		33,497
Other liabilities	15,715			17,490			Other liabilities	15,487		17,490
Total liabilities	551,923			375,581			Total liabilities	520,135		375,581
Shareholders’ equity:							Shareholders’ equity:
Common stock, no par value; 100,000 shares authorized; 63,717 and 64,371 shares issued and outstanding at December 31, 2018, and September 30, 2018, at stated amount, respectively	492,938			487,539
Common stock, no par value; 100,000 shares authorized; 63,811 and 64,371 shares issued and outstanding at March 31, 2019, and September 30, 2018, at stated amount, respectively							Common stock, no par value; 100,000 shares authorized; 63,811 and 64,371 shares issued and outstanding at March 31, 2019, and September 30, 2018, at stated amount, respectively	498,269		487,539
Accumulated other comprehensive loss	(42,673		)	(36,953		)	Accumulated other comprehensive loss	(39,136)		(36,953)
Retained earnings	664,332			633,281			Retained earnings	705,824		633,281
Total MAXIMUS shareholders’ equity	1,114,597			1,083,867			Total MAXIMUS shareholders’ equity	1,164,957		1,083,867
Noncontrolling interests	2,782			2,552			Noncontrolling interests	2,624		2,552
Total equity	1,117,379			1,086,419			Total equity	1,167,581		1,086,419
Total liabilities and equity	$	1,669,302		$	1,462,000		Total liabilities and equity	$	1,687,716	$	1,462,000


	Six Months Ended March 31,
	2019		2018
Cash flows from operations:
Net income	$	117,489	$	115,058
Adjustments to reconcile net income to cash flows from operations:
Depreciation and amortization of property and equipment and capitalized software	22,407		27,074
Amortization of intangible assets	14,977		5,321
Deferred income taxes	17,764		(9,179)
Stock compensation expense	9,904		11,324

Change in assets and liabilities excluding acquired assets and liabilities:
Accounts receivable — billed and billable	(72,720)		(18,522)
Accounts receivable — unbilled	9,189		(4,730)
Prepaid expenses and other current assets	(5,118)		8,526
Deferred contract costs	(5,415)		1,794
Accounts payable and accrued liabilities	42,080		(3,171)
Accrued compensation and benefits	(7,443)		(15,391)
Deferred revenue	4,435		(23,789)
Income taxes	(16,496)		18,634
Other assets and liabilities	(3,842)		3,811
Cash flows from operations	127,211		116,760
Cash flows from investing activities:
Purchases of property and equipment and capitalized software costs	(18,541)		(13,175)
Acquisitions	(421,809)		(157)

Redemption of short-term investments	19,996		—
Other	284		541
Cash used in investing activities	(420,070)		(12,791)
Cash flows from financing activities:
Cash dividends paid to MAXIMUS shareholders	(31,983)		(5,865)
Purchases of MAXIMUS common stock	(46,068)		(1,038)
Tax withholding related to RSU vesting	(8,915)		(8,529)

Borrowings	320,048		124,683
Repayment of credit facility and other long-term debt	(241,539)		(124,752)


Other	(133)		(2,130)
Cash used in financing activities	(8,590)		(17,631)
Effect of exchange rate changes on cash and cash equivalents	(632)		1,070
Net (decrease)/increase in cash, cash equivalents and restricted cash	(302,081)		87,408
Cash, cash equivalents and restricted cash, beginning of period	356,559		179,727
Cash, cash equivalents and restricted cash, end of period	$	54,478	$	267,135



	Three Months Ended December 31,
	2018			2017
Cash flows from operations:
Net income	$	55,723		$	59,952
Adjustments to reconcile net income to cash flows from operations:
Depreciation and amortization of property and equipment and capitalized software	11,231			13,719
Amortization of intangible assets	5,458			2,718
Deferred income taxes	16,511			5,707
Stock compensation expense	4,971			5,402
Change in assets and liabilities:
Accounts receivable — billed and billable	(69,890		)	(44,381		)
Accounts receivable — unbilled	20,198			5,535
Prepaid expenses and other current assets	(5,691		)	6,019
Deferred contract costs	(1,757		)	1,413
Accounts payable and accrued liabilities	26,564			11,387
Accrued compensation and benefits	377			(29,588		)
Deferred revenue	(372		)	(12,405		)
Income taxes	(3,848		)	9,642
Other assets and liabilities	(135		)	2,877
Cash flows from operations	59,340			37,997
Cash flows from investing activities:
Purchases of property and equipment and capitalized software costs	(9,973		)	(6,514		)
Acquisition of the citizen engagement centers business	(421,809		)	—
Redemption of short-term investments	19,996			—
Other	47			59
Cash used in investing activities	(411,739		)	(6,455		)
Cash flows from financing activities:
Cash dividends paid to MAXIMUS shareholders	(16,033		)	(2,930		)
Purchases of MAXIMUS common stock	(40,984		)	(1,038		)
Tax withholding related to RSU vesting	(8,915		)	(8,529		)
Borrowings	195,100			59,683
Repayment of credit facility and other long-term debt	(70,033		)	(48,156		)
Other	(133		)	—
Cash provided by/(used in) financing activities	59,002			(970		)
Effect of exchange rate changes on cash and cash equivalents	(1,068		)	203
Net (decrease)/increase in cash, cash equivalents and restricted cash	(294,465		)	30,775
Cash, cash equivalents and restricted cash, beginning of period	356,559			179,727
Cash, cash equivalents and restricted cash, end of period	$	62,094		$	210,502


	Common Shares Outstanding	Common Stock		Accumulated Other Comprehensive Income/(Loss)		Retained Earnings		Noncontrolling Interest		Total
Balance at Balance at December 31, 2018	63,717	$	492,938	$	(42,673)	$	664,332	$	2,782	$	1,117,379
Net income	—	—		—		61,924		(158)		61,766
Foreign currency translation	—	—		3,537		—		—		3,537
Cash dividends	—	—		—		(15,950)		—		(15,950)
Dividends on RSUs	—	398		—		(398)		—		—
Purchases of common stock	(62)	—		—		(4,084)		—		(4,084)
Stock compensation expense	—	4,933		—		—		—		4,933


RSUs vested	156	—		—		—		—		—

Balance at March 31, 2019	63,811	$	498,269	$	(39,136)	$	705,824	$	2,624	$	1,167,581



	Common Shares Outstanding		Common Stock		Accumulated Other Comprehensive Income / (Loss)			Retained Earnings			Noncontrolling Interest		Total
Balance at September 30, 2017	65,137		$	475,592	$	(27,619	)	$	492,112		$	5,683	$	945,768
Net income	—		—		—			59,091			861		59,952
Foreign currency translation	—		—		315			—			—		315
Cash dividends	—		—		—			(2,930		)	—		(2,930		)
Dividends on RSUs	—		84		—			(84		)	—		—
Purchases of common stock	(17	)	—		—			(1,038		)	—		(1,038		)
Stock compensation expense	—		5,402		—			—			—		5,402
Tax withholding related to RSU vesting	—		183		—			—			—		183
Balance at December 31, 2017	65,120		$	481,261	$	(27,304	)	$	547,151		$	6,544	$	1,007,652


(dollars in thousands)	Balance at September 30, 2018		Adjustments due to adoption of new standard			Opening balance at October 1, 2018		(dollars in thousands)	Balance at September 30, 2018		Adjustments due to adoption of new standard		Opening balance at October 1, 2018
Assets								Assets
Accounts receivable - unbilled	$	31,536	$	35,414		$	66,950	Accounts receivable - unbilled	$	31,536	$	35,414	$	66,950
Deferred income taxes	6,834		(6,625		)	209		Deferred income taxes	6,834		(6,625)		209
Liabilities and shareholders' equity								Liabilities and shareholders' equity
Deferred revenue - current	51,182		(11,767		)	39,415		Deferred revenue - current	51,182		(11,767)		39,415
Deferred income taxes - long-term	26,377		7,074			33,451		Deferred income taxes - long-term	26,377		7,074		33,451
Retained earnings	633,281		32,929			666,210		Retained earnings	633,281		32,929		666,210
Noncontrolling interests	2,552		553			3,105		Noncontrolling interests	2,552		553		3,105


(dollars in thousands)	Balance at March 31, 2019, under previous accounting guidance		Adjustments due to adoption of new standard		Balance at March 31, 2019, as reported
Assets
Accounts receivable - unbilled	$	95,796	$	35,454	$	131,250
Deferred income taxes	6,858		(6,649)		209
Liabilities and shareholders' equity
Deferred revenue - current	51,963		(12,748)		39,215
Deferred income taxes - long-term	43,957		7,103		51,060
Accumulated other comprehensive loss	(38,617)		(519)		(39,136)
Retained earnings	671,897		33,927		705,824
Noncontrolling interests	1,581		1,043		2,624



(dollars in thousands)	Balance at December 31, 2018 as reported			Adjustments due to adoption of new standard			Balance at December 31, 2018 under previous accounting guidance
Assets
Accounts receivable - unbilled	$	124,385		$	(34,233	)	$	90,152
Deferred income taxes	209			6,743			6,952
Liabilities and shareholders' equity
Deferred revenue - current	37,231			12,521			49,752
Deferred income taxes - long-term	49,617			(6,764		)	42,853
Accumulated other comprehensive loss	(42,673		)	825			(41,848		)
Retained earnings	664,332			(33,349		)	630,983
Noncontrolling interests	2,782			(723		)	2,059


	Balance as of
(dollars in thousands)	March 31, 2019		September 30, 2018		March 31, 2018		September 30, 2017
Cash and cash equivalents	$	46,799	$	349,245	$	253,227	$	166,252
Restricted cash (recorded within "other current assets")	7,679		7,314		13,908		13,475
Cash, cash equivalents and restricted cash	$	54,478	$	356,559	$	267,135	$	179,727



	Balance as of
(dollars in thousands)	December 31, 2018		September 30, 2018		December 31, 2017		September 30, 2017
Cash and cash equivalents	$	54,736	$	349,245	$	196,905	$	166,252
Restricted cash (recorded within "other current assets")	7,358		7,314		13,597		13,475
Cash, cash equivalents and restricted cash	$	62,094	$	356,559	$	210,502	$	179,727


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


~~(2)~~	Other selling, general & administrative expenses includes credits and costs not directly allocated to a particular segment. In the three month period ended December 31, 2018, these include $2.7 million of costs directly related to the acquisition of the citizen engagement centers business.



(dollars in thousands)	Revenue for the three months ended December 31, 2018
Program administration	$	218,973
Assessments and appeals	37,221
Workforce and children services	23,903
Other	14,116
Total U.S. Health and Human Services	$	294,213

Program administration	$	140,121
Technology solutions	38,883
Assessments and appeals	37,983
Total U.S. Federal Services	$	216,987

Workforce and children services	$	73,278
Assessments and appeals	62,310
Program administration	15,320
Other	2,511
Total Outside the U.S.	$	153,419

Total revenue	$	664,619



(dollars in thousands)	Revenue for the three months ended December 31, 2018
Performance-based	$	312,887
Cost-plus	175,298
Fixed price	147,151
Time and materials	29,283
Total revenue	$	664,619



(dollars in thousands)	Estimated purchase price allocation
Estimated cash consideration	$	429,335

Billed and unbilled receivables	$	145,319
Property and equipment	6,454
Other assets	681
Intangible assets	122,300
Total identifiable assets acquired	274,754
Accounts payable and other liabilities	33,296
Net identifiable assets acquired	241,458
Goodwill	187,877
Net assets acquired	$	429,335



	As of December 31, 2018						As of September 30, 2018
(dollars in thousands)	Cost		Accumulated Amortization		Intangible Assets, net		Cost		Accumulated Amortization		Intangible Assets, net
Customer contracts and relationships	$	248,323	$	45,273	$	203,050	$	129,113	$	42,683	$	86,430
Technology based intangible assets	5,564		4,113		1,451		5,750		4,212		1,538
Trademarks and trade names	4,469		4,417		52		4,496		4,429		67
Total	$	258,356	$	53,803	$	204,553	$	139,359	$	51,324	$	88,035



Nine months ended September 30, 2019	$	27,541
2020	35,281
2021	18,233
2022	15,859
2023	15,762
2024	15,639



	Three Months Ended December 31,						Trailing Twelve Months Ended December 31,
(dollars in thousands)	2018			2017			2018			2017
Net income attributable to MAXIMUS	$	55,913		$	59,091		$	217,573		$	221,853
Interest (income)/expense, net	(957		)	(258		)	(3,290		)	(625		)
Provision of income taxes	19,833			19,850			78,376			95,042
Amortization of intangible assets	5,458			2,718			13,048			11,524
Stock compensation expense	4,971			5,402			19,807			21,878
Acquisition-related expenses	2,690			—			3,637			83
Gain on sale of a business	—			—			—			(650		)
Adjusted EBITA	$	87,908		$	86,803		$	329,151		$	349,105
Depreciation and amortization of property, plant, equipment and capitalized software	11,231			13,719			49,396			54,926
Adjusted EBITDA	$	99,139		$	100,522		$	378,547		$	404,031
Additional adjusted EBITDA related to citizen engagement centers acquisition	6,695						28,330
Pro Forma Adjusted EBITDA	$	105,834					$	406,877