Table of Contents

As filed with the Securities and Exchange Commission on February 3, 2022
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)one)
☒ QQuarterly Report Pursuant to SectionUARTERLY REPORT PURSUANT TO SECTION 13 orOR 15(d) of the Securities Exchange Act ofOF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2020
OR2021
☐ Transition Report Pursuant to SectionTRANSITION REPORT PURSUANT TO SECTION 13 orOR 15(d) of the Securities Exchange Act ofOF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
__________to__________.
Commission File Number:file number: 1-12997
Maximus, Inc.mms-20211231_g1.jpg
(Exact name of registrant as specified in its charter)

Maximus, Inc.
(Exact name of registrant as specified in its charter)
Virginia54-1000588
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)
1891 Metro Center Drive, Reston, Virginia20190
(Address of principal executive offices)(Zip Code)
(703) 251-8500
(Registrant's telephone number, including the area code)
(703) 251-8500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, no par valueMMSNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large"large accelerated filer,” “accelerated" "accelerated filer,” “smaller" "smaller reporting company”company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☒
 
Accelerated filer ☐
 
Non-accelerated filer ☐
Smaller reporting company ☐
Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
AsThere were 61,922,097 shares of the registrant's Common Stock outstanding as of February 1, 2021, there were 61,452,520 shares of the registrant’s common stock (no par value) outstanding.

2022.


Table of Contents
Maximus, Inc.
Quarterly Report onTable of Contents to First Quarter 2022 Form 10-Q
For the Quarter Ended December 31, 2020
INDEX
PART I. FINANCIAL INFORMATION
Item 1.
3
4
Item 1.
14
Consolidated Statements of Operations for the Three
Months Ended December 31, 2020 and 2019 (unaudited)4
1
Consolidated Statements of Comprehensive Income for the Three Months Ended December 31, 2020 and 2019 (unaudited)
25
Consolidated Balance Sheets as of
December6 31, 2020 (unaudited) and September 30, 2020
3
Consolidated Statements of Cash Flows for the
Three Months Ended December 31, 2020 and 2019 (unaudited)7
4
Consolidated Statements of Changes in Shareholders’Shareholders' Equity for the Thre
e Months Ended December 31, 2020 and 2019 (unaudited)8
5
Notes to Unauditedthe Consolidated Financial Statements
9
61. Organization
Item 2.
Management’s9
2. Significant Accounting Policies
9
3. Business Segments
10
4. Revenue Recognition
12
5. Earnings Per Share
14
6. Business Combinations
14
7. Debt
16
8. Derivatives
17
9. Fair Value
18
10. Equity
18
11. Cash and Cash Equivalents and Restricted Cash
19
12. Accounts Receivable, Net
19
13. Property and Equipment, Net
20
14.Commitments and Contingencies
20
15. Subsequent Event
20
Item 2.
21
21
22
22
28
29
29
Item 3.
31
25Item 4.
Item 4.
31
2532
PART II. OTHER INFORMATION
Item 1.
2632
Item 1A.
2632
Item 2.
Securities and Uses of Proceeds32
26Item 3.
32
Item 4.
32
Item 5.
32
Item 6.
2733
2834


2

Table of Contents
ThroughoutUnless otherwise specified, references in this Quarterly Report on Form 10-Q to "our," "we," "us," "Maximus," the terms “Company,” “we,” “us,” “our”"Company," and “Maximus”"our business" refer to Maximus, Inc. and its subsidiaries, unless the context requires otherwise.subsidiaries.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Included in this Quarterly Report on Form 10-Q are forward-looking statements within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as: “anticipate,” “intend,” “plan,” “goal,” “seek,” “opportunity,” “could,” “potential,” “believe,” “project,” “estimate,” “expect,” “strategy,” “future,” “likely,” “may,” “should,” “will,”"anticipate," "intend," "plan," "goal," "seek," "opportunity," "could," "potential," "believe," "project," "estimate," "expect," "strategy," "future," "likely," "may," "should," "will," and similar references to future periods.
Forward-looking statements that are not historical facts, including statements about our confidence, strategies and initiatives, and our expectations about revenues, results of operations, profitability, liquidity, market demand, or the impact of the Coronavirus (COVID)coronavirus ("COVID-19") global pandemic and related vaccine mandate implications, and our recent acquisitions are forward-looking statements that involve risks and uncertainties. These risks could cause our actual results to differ materially from those indicated by such forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:
•a failure to meet performance requirements in our contracts, which might lead to contract termination and actual or liquidated damages;
•our failure to successfully bid for and accurately price contracts to generate our desired profit;
•the extenteffects of future legislative or government budgetary and impact of the continuation of the global pandemic and the actions taken or to be taken by us, our customers, and the governments or jurisdictions in which we operate in response to COVID;spending changes;
•the impact of the Biden Administration on federal procurement, federal funding to states' safety-net programs, and the overall decision-making process related to our industry, including our business and customers;
•the demand for our services and products,ability to manage our growth, including the impacts of any economic downturns;acquired businesses;
•a failure to meet performance requirementsdifficulties in our contracts, which might lead to contract terminationintegrating or achieving projected revenues, earnings, and actual or liquidated damages;other benefits associated with acquired businesses;
•the effectsoutcome of future legislativereviews or government budgetaryaudits, which might result in financial penalties and spending changes;impair our ability to respond to invitations for new work;
•our failureability to successfully bid formanage capital investments and accurately price contractsstartup costs incurred before receiving related contract payments;
•our ability to generatemanage our desired profit;debt;
•the extent and impact of the continuation of the global pandemic and the actions taken or to be taken by us, our customers, and the governments or jurisdictions in which we operate in response to COVID-19;
•our ability to maintain technology systems and otherwise protect confidential or protected information;
•our ability to attract and retain executive officers, senior managers and other qualified personnel to execute our business;
•our ability to manage capital investments and startup costs incurred before receiving related contract payments;
•our ability to manage our growth, including acquired businesses;
•the ability of government customers to terminate contracts on short notice, with or without cause;
•our ability to maintain relationships with key government entities from whom a substantial portion of our revenue is derived;
•the outcome of reviews or audits, which might result in financial penalties and impair our ability to respond to invitations for new work;
•a failure to comply with laws governing our business, which might result in the Company being subject to fines, penalties, suspension, debarment, and other sanctions;
•the costs and outcome of litigation;
•difficulties in integrating or achieving projected revenues, earnings, and other benefits associated with acquired businesses;
•the effects of changes in laws and regulations governing our business, including tax laws, and applicable interpretations and guidance thereunder, or changes in accounting policies, rules, methodologies, and practices, and our ability to estimate the impact of such changes;
•matters related to business we disposed of or divested; and
•other factors set forth in Item 1A, "Risk Factors" inof our Annual Report on FormFrom 10-K, for the year ended September 30, 2020, which was filed with the Securities and Exchange Commission on November 19, 2020.18, 2021.
Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments, or otherwise.


PART I.  FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements.
Maximus, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(Unaudited)
 Three Months Ended December 31,
 20202019
Revenue$945,554 $818,229 
Cost of revenue739,499 642,779 
Gross profit206,055 175,450 
Selling, general, and administrative expenses111,967 87,227 
Amortization of intangible assets6,516 9,088 
Operating income87,572 79,135 
Interest expense206 484 
Other (expense)/income, net(775)719 
Income before income taxes86,591 79,370 
Provision for income taxes22,514 20,636 
Net income$64,077 $58,734 
Basic earnings per share$1.03 $0.91 
Diluted earnings per share$1.03 $0.91 
Dividends paid per share$0.28 $0.28 
Weighted average shares outstanding:
Basic62,038 64,597 
Diluted62,135 64,758 

See notes to unaudited consolidated financial statements.
1

Maximus, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
(Unaudited)
 Three Months Ended December 31,
 20202019
Net income$64,077 $58,734 
Foreign currency translation adjustments6,923 6,893 
Comprehensive income$71,000 $65,627 

See notes to unaudited consolidated financial statements.
2

Maximus, Inc.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
 December 31,
2020		September 30,
2020
 (unaudited) 
ASSETS  
Current assets:  
Cash and cash equivalents$132,597 $71,737 
Accounts receivable — billed and billable, net of allowance of $6,579 and $6,051662,059 622,871 
Accounts receivable — unbilled120,764 163,332 
Income taxes receivable2,472 2,075 
Prepaid expenses and other current assets68,935 72,543 
Total current assets986,827 932,558 
Property and equipment, net62,548 66,721 
Capitalized software, net40,434 38,033 
Operating lease right-of-use assets165,448 177,159 
Goodwill595,927 593,129 
Intangible assets, net140,484 145,893 
Deferred contract costs, net21,294 20,891 
Deferred compensation plan assets42,350 36,819 
Deferred income taxes222 1,915 
Other assets10,699 11,584 
Total assets$2,066,233 $2,024,702 
LIABILITIES AND SHAREHOLDERS’ EQUITY  
Current liabilities:  
Accounts payable and accrued liabilities$266,038 $253,338 
Accrued compensation and benefits93,443 137,101 
Deferred revenue58,307 51,655 
Income taxes payable22,685 5,377 
Current portion of long-term debt and other borrowings14,159 10,878 
Operating lease liabilities72,482 80,748 
Other current liabilities20,286 22,071 
Total current liabilities547,400 561,168 
Deferred revenue, less current portion27,428 27,311 
Deferred income taxes24,417 24,737 
Long-term debt, less current portion18,481 18,017 
Deferred compensation plan liabilities, less current portion45,304 38,654 
Operating lease liabilities, less current portion95,678 104,011 
Other liabilities9,214 8,985 
Total liabilities767,922 782,883 
Shareholders’ equity:  
Common stock, no par value; 100,000 shares authorized; 61,452 and 61,504 shares issued and outstanding at December 31, 2020, and September 30, 2020, respectively520,357 513,959 
Accumulated other comprehensive loss(35,715)(42,638)
Retained earnings813,669 770,498 
Total shareholders' equity1,298,311 1,241,819 
Total liabilities and shareholders' equity$2,066,233 $2,024,702 
See notes to unaudited consolidated financial statements.
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PART I - Financial Information
Item 1. Financial Statements
Maximus, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)Consolidated Statements of Operations
(Unaudited)
 Three Months Ended December 31,
 20202019
Cash flows from operations:  
Net income$64,077 $58,734 
Adjustments to reconcile net income to cash flows from operations:  
Depreciation and amortization of property and equipment and
capitalized software		11,817 15,318 
Amortization of intangible assets6,516 9,088 
Deferred income taxes1,298 422 
Stock compensation expense6,062 5,397 
Change in assets and liabilities, net of effects of business combinations  
Accounts receivable — billed and billable(35,729)(31,016)
Accounts receivable — unbilled43,538 2,013 
Prepaid expenses and other current assets4,893 4,063 
Deferred contract costs(205)848 
Accounts payable and accrued liabilities11,199 2,403 
Accrued compensation and benefits(35,682)6,842 
Deferred revenue5,757 (1,345)
Income taxes16,947 13,984 
Operating lease right-of-use assets and liabilities(4,927)(1,622)
Other assets and liabilities2,554 2,138 
Cash flows from operations98,115 87,267 
Cash flows from investing activities:  
Purchases of property and equipment and capitalized software costs(9,094)(10,487)
Other(159)25 
Cash used in investing activities(9,253)(10,462)
Cash flows from financing activities:  
Cash dividends paid to Maximus shareholders(17,207)(17,913)
Purchases of Maximus common stock(3,363)(1,898)
Tax withholding related to RSU vesting(9,818)(10,614)
Borrowings of debt147,852 83,419 
Repayment of debt(146,188)(86,301)
Other(2,763)(493)
Cash used in financing activities(31,487)(33,800)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash3,882 1,452 
Net increase in cash, cash equivalents, and restricted cash61,257 44,457 
Cash, cash equivalents, and restricted cash, beginning of period88,561 116,492 
Cash, cash equivalents, and restricted cash, end of period$149,818 $160,949 

For the Three Months Ended
December 31, 2021December 31, 2020
(in thousands, except per share amounts)
Revenue$1,150,876 $945,554 
Cost of revenue922,721 739,499 
Gross profit228,155 206,055 
Selling, general, and administrative expenses124,221 111,967 
Amortization of intangible assets22,405 6,516 
Operating income81,529 87,572 
Interest expense(9,638)(206)
Other expense, net(311)(775)
Income before income taxes71,580 86,591 
Provision for income taxes18,250 22,514 
Net income$53,330 $64,077 
Earnings per share:
Basic$0.86 $1.03 
Diluted$0.85 $1.03 
Weighted average shares outstanding:
Basic62,262 62,038 
Diluted62,445 62,135 
Dividends declared per share$0.28 $0.28 
See accompanying notes to unaudited consolidated financial statements.
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Maximus, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Amounts in thousands)Consolidated Statements of Comprehensive Income
(Unaudited)
Common
Shares
Outstanding		Common
Stock		Accumulated
Other
Comprehensive
Loss		Retained
Earnings		Noncontrolling
Interest		Total
Balance at September 30, 202061,504 $513,959 $(42,638)$770,498 $0 $1,241,819 
Net income— — — 64,077 — 64,077 
Foreign currency translation— — 6,923 — — 6,923 
Cash dividends— — — (17,207)— (17,207)
Dividends on RSUs— 336 — (336)— 0 
Purchases of Maximus common stock(52)— — (3,363)— (3,363)
Stock compensation expense— 6,062 — — — 6,062 
Balance at December 31, 202061,452 $520,357 $(35,715)$813,669 $0 $1,298,311 


Common
Shares
Outstanding		Common
Stock		Accumulated
Other
Comprehensive
Loss		Retained
Earnings		Noncontrolling
Interest		Total
Balance at September 30, 201963,979 $498,433 $(45,380)$794,739 $409 $1,248,201 
Net income— — — 58,734 — 58,734 
Foreign currency translation— — 6,893 — — 6,893 
Cash dividends— — — (17,913)(409)(18,322)
Dividends on RSUs— 354 — (354)— 0 
Purchases of Maximus common stock(26)— — (1,898)— (1,898)
Stock compensation expense— 5,397 — — — 5,397 
Balance at December 31, 201963,953 $504,184 $(38,487)$833,308 $0 $1,299,005 











For the Three Months Ended
December 31, 2021December 31, 2020
(in thousands)
Net income$53,330 $64,077 
Other comprehensive income, net of tax:
Foreign currency translation adjustments459 6,923 
Net gains on cash flow hedge, net of tax2,685 — 
Other comprehensive income3,144 6,923 
Comprehensive income$56,474 $71,000 
See accompanying notes to unaudited consolidated financial statements.

5

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Maximus, Inc.
Consolidated Balance Sheets
December 31, 2021September 30, 2021
(unaudited)
(in thousands)
Assets:
Cash and cash equivalents$181,790 $135,061 
Accounts receivable, net849,410 834,819 
Income taxes receivable2,826 5,413 
Prepaid expenses and other current assets114,303 104,201 
Total current assets1,148,329 1,079,494 
Property and equipment, net53,627 62,627 
Capitalized software, net40,349 42,868 
Operating lease right-of-use assets177,866 179,349 
Goodwill1,776,239 1,774,406 
Intangible assets, net871,761 879,168 
Deferred contract costs, net43,319 36,486 
Deferred compensation plan assets49,376 46,738 
Deferred income taxes1,745 990 
Other assets19,257 16,839 
Total assets$4,181,868 $4,118,965 
Liabilities and Shareholders' Equity:
Liabilities:
Accounts payable and accrued liabilities$273,289 $305,565 
Accrued compensation and benefits118,891 186,809 
Deferred revenue, current portion111,578 98,588 
Income taxes payable14,897 6,782 
Long-term debt, current portion78,703 80,555 
Operating lease liabilities, current portion70,345 76,077 
Other current liabilities43,089 35,057 
Total current liabilities710,792 789,433 
Deferred revenue, non-current portion29,072 35,932 
Deferred income taxes196,144 194,638 
Long-term debt, non-current portion1,515,089 1,429,137 
Deferred compensation plan liabilities, non-current portion53,013 47,405 
Operating lease liabilities, non-current portion119,654 121,771 
Other liabilities29,678 20,320 
Total liabilities2,653,442 2,638,636 
Commitments and contingencies (Note 14)00
Shareholders' equity:
Common stock, no par value; 100,000 shares authorized; 61,936 and 61,954 shares issued and outstanding as of December 31, 2021 and September 30, 2021, respectively (shares in thousands)543,032 532,411 
Accumulated other comprehensive loss(36,764)(39,908)
Retained earnings1,022,158 987,826 
Total shareholders' equity1,528,426 1,480,329 
Total liabilities and shareholders' equity$4,181,868 $4,118,965 
See accompanying notes to unaudited consolidated financial statements.
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Maximus, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months Ended
December 31, 2021December 31, 2020
(in thousands)
Cash flows from operating activities:
Net income$53,330 $64,077 
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation and amortization of property, equipment and capitalized software11,365 11,817 
Amortization of intangible assets22,405 6,516 
Amortization of debt issuance costs and debt discount649 — 
Deferred income taxes(229)1,298 
Stock compensation expense8,248 6,062 
Change in assets and liabilities, net of effects of business combinations:
Accounts receivable(14,114)7,809 
Prepaid expenses and other current assets(5,115)4,893 
Deferred contract costs(6,811)(205)
Accounts payable and accrued liabilities(32,452)11,199 
Accrued compensation and benefits(56,305)(35,682)
Deferred revenue5,929 5,757 
Income taxes10,321 16,947 
Operating lease right-of-use assets and liabilities(6,370)(4,927)
Other assets and liabilities6,230 2,554 
Net cash (used in)/provided by operating activities(2,919)98,115 
Cash flows from investing activities:
Purchases of property and equipment and capitalized software(6,327)(9,094)
Other— (159)
Net cash used in investing activities(6,327)(9,253)
Cash flows from financing activities:
Cash dividends paid to Maximus shareholders(17,347)(17,207)
Purchases of Maximus common stock(1,379)(3,363)
Tax withholding related to RSU vesting(9,673)(9,818)
Proceeds from borrowings100,000 147,852 
Principal payments for debt(16,685)(146,188)
Other— (2,763)
Net cash provided by/(used in) financing activities54,916 (31,487)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash372 3,882 
Net change in cash, cash equivalents, and restricted cash46,042 61,257 
Cash, cash equivalents and restricted cash, beginning of period156,570 88,561 
Cash, cash equivalents and restricted cash, end of period$202,612 $149,818 
See accompanying notes to unaudited consolidated financial statements.
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Maximus, Inc.
Consolidated Statements of Changes in Shareholders' Equity
(Unaudited)
Common StockAccumulated
Other
Comprehensive
Loss		Retained
Earnings		Total
Equity
SharesAmount
(in thousands)
Balance at September 30, 202161,954$532,411 $(39,908)$987,826 $1,480,329 
Net income—— — 53,330 53,330 
Foreign currency translation—— 459 — 459 
Cash flow hedge, net of tax—— 2,685 — 2,685 
Cash dividends—— — (17,347)(17,347)
Dividends on RSUs—272 — (272)— 
Purchases of Maximus common stock(18)— — (1,379)(1,379)
Stock compensation expense—8,248 — — 8,248 
Tax withholding adjustment related to RSU vesting—2,101 — — 2,101 
Balance as of December 31, 202161,936$543,032 $(36,764)$1,022,158 $1,528,426 
Common StockAccumulated
Other
Comprehensive
Loss		Retained
Earnings		Total
Equity
SharesAmount
(in thousands)
Balance at September 30, 202061,504$513,959 $(42,638)$770,498 $1,241,819 
Net income—— — 64,077 64,077 
Foreign currency translation—— 6,923 — 6,923 
Cash dividends—— — (17,207)(17,207)
Dividends on RSUs—336 — (336)— 
Purchases of Maximus common stock(52)— — (3,363)(3,363)
Stock compensation expense—6,062 — — 6,062 
Balance as of December 31, 202061,452$520,357 $(35,715)$813,669 $1,298,311 
See accompanying notes to unaudited consolidated financial statements.
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Maximus, Inc.
Notes to the Unaudited Consolidated Financial Statements
For
1. ORGANIZATION
Maximus, a Virginia corporation established in 1975, is a leading provider of government services worldwide. Maximus operates under its founding mission of Helping Government Serve the Three Months Ended December 31, 2020People®, enabling citizens around the globe to successfully engage with their governments at all levels and 2019

across a variety of health and human services programs. Maximus delivers innovative business process management and technology solutions that contribute to improved outcomes for citizens and higher levels of productivity, accuracy, accountability, and efficiency of government-sponsored programs. Maximus is a proud partner to government agencies in the United States, Australia, Canada, Italy, Saudi Arabia, Singapore, South Korea, Sweden, and the United Kingdom.
1. Organization and 2. SIGNIFICANT ACCOUNTING POLICIES
(a)Basis of Presentation
The accompanying unaudited consolidated financial statements include the accounts of the Company and its subsidiaries over which the Company has a controlling financial interest, and have been prepared in accordance with accounting principles generally accepted in the United States, for interim financial informationor U.S. GAAP, and the instructions to Form 10-Qrules and Article 10 of Regulation S-X. As permitted by these instructions, they do not include allregulations of the informationU.S. Securities and notes required by generally accepted accounting principles (GAAP) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation are included.Exchange Commission, or SEC. All intercompany balances and transactions have been eliminated in consolidation.
(b)Basis of Presentation for Interim Periods
Certain information and footnote disclosures normally included for the annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted for the interim periods presented. Management believes that the unaudited interim financial statements include all adjustments (which are normal and recurring in nature) necessary to present fairly the financial position of the Company and the results of operations and cash flows for the periods presented.
The results of operations for the three months ended December 31, 2020,interim periods presented are not necessarily indicative of the results that may be expected for the full fiscal year.year or future periods. The balance sheet at September 30, 2020, has been derived from the audited financial statements at that date, but does not include all of the information and notes required by GAAP for complete financial statements.
These financial statements should be read in conjunction with theour audited consolidated audited financial statements and the notes thereto at September 30, 2020 and 2019, and for each of the three years in the periodyear ended September 30, 2020,2021 included in our Annual Report on Form 10-K which was filed withfor the Securities and Exchange Commission on November 19, 2020.fiscal year then ended (the "2021 10-K"). The Company has continued to follow the accounting policies set forth in those financial statements.
(c)Estimates
The preparation of these financial statements, in conformity with U.S. GAAP, in the United States, 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. At each reporting period end, we make estimates, including those related to revenue recognition and cost estimation on certain contracts, the realizability of goodwill, and amounts related to income taxes, certain accrued liabilities, and contingencies and litigation.
We base our estimates on historical experience and expectations of the future that we believe to be reasonable. The economic and political effects of the Coronavirus (COVID)COVID-19 global pandemic increase uncertainty, which has reduced our ability to use past results to estimate future performance. Accordingly, our estimates may be subject to greater volatility than has been the case in the past.
•Our balance sheet includes goodwill valued at $595.9 million. This balance is allocated between reporting units, which are consistent with our 3 operating segments. Goodwill is not amortized but is tested for impairment when necessary and no less than once per year. We performed our last annual goodwill impairment test as of July 1, 2020, using a qualitative assessment. There has been no indication of impairment of any reporting unit at this time or since.
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•Our balance sheet includes a number of long-lived assets, including property and equipment, capitalized software, operating lease right-of-use assets, deferred contract costs and intangible assets. These assets are depreciated or amortized over their estimated useful economic lives but are subject to impairment if events indicate that the carrying amount may not be recoverable. At this time, there are no balances which we believe are not recoverable.
•Our balance sheet includes $782.8 million of billed, billable and unbilled accounts receivable, net of allowance for credit losses. Beginning October 1, 2020, we have evaluated credit risk under ASC Topic 326; as further described below. Credit risk has not historically been significant to our business due to the nature of our customers. During the three months ended December 31, 2020, we recorded changes to our estimated credit losses of $0.6 million.
•As disclosed in "Note 3. Revenue Recognition," revenue for some of our employment services contracts in the Outside the U.S. Segment is based upon achievement of future outcomes as defined in each contract. Specifically, we are paid as individuals attain employment goals, which may take many months to achieve. Revenue is recognized on these contracts over the period of performance. Employment markets worldwide suffered a significant shock during fiscal year 2020 and remain disrupted.
•Many of our contracts in the United States are cost-plus contracts, where we are reimbursed for costs that are allowable, allocable and reasonable. Due to the global pandemic, we are incurring incremental and
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unusual costs, including additional sick pay and idle labor for employees who are unable to perform services due to their health issues, child care issues, or physical restrictions imposed on their workplace. Although the U.S. Federal Government, which provides the majority of our cost-plus contracts, has provided regular guidance, there is some uncertainty within other contracts as to recoverable costs.

Changes in financial reporting
In August 2018, the Financial Accounting Standards Board (FASB) issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This accounting guidance requires customers in cloud-computing arrangements to identify and defer certain implementation costs in a manner broadly consistent with that of existing guidance on the costs to develop or obtain internal-use software. Costs capitalized under this guidance will be expensed over the term of the cloud computing arrangement. We adopted this guidance on October 1, 2020, using a prospective approach.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326):Measurement of Credit Losses on Financial Instruments. This update introduces a new model for recognizing credit losses on financial instruments, including losses on accounts receivable. This update replaces the existing incurred loss impairment model with an expected loss model. We adopted this guidance on October 1, 2020, with no material impact to our financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. This standard will not change the manner in which we would identify a goodwill impairment but would change any subsequent calculation of an impairment charge. We adopted this standard on October 1, 2020. The effect of this new standard will depend upon the outcome of future goodwill impairment tests.
We are subject to agreements that reference the London Interbank Offering Rate (LIBOR). Between now and December 2022, we anticipate that agreements with LIBOR will be updated to reflect the transition from this rate to alternative reference rates. In March 2020, FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This standard is intended to provide temporary optional expedients and exceptions on contract modifications and hedge accounting to ease the financial reporting burdens related to this expected market transition. This standard is effective for all entities upon issuance through December 31, 2022. We are assessing the impact of the market transition and this standard.

2. Segment Information3. BUSINESS SEGMENTS
We conduct our operations through 3 business segments: U.S. Services, U.S. Federal Services, and Outside the U.S.
•U.S. Services
Our U.S. Services Segment provides a variety of business process services ("BPS") 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 the Affordable Care Act (ACA)("ACA"), Medicaid, the Children’sChildren's Health Insurance Program (CHIP)("CHIP"), Temporary Assistance to Needy Families (TANF)("TANF"), and child support programs. TheAddressing societal macro trends such as aging populations and rising costs, the segment continues to execute on its clinical evolution strategy by expanding its clinical offerings in public health with new work in contact tracing, disease investigation, and vaccine distribution support services as part of the government's COVID-responsegovernments' COVID-19 response efforts. WeThe segment also successfully expanded into the unemployment insurance market, supporting more than 15 states in their unemployment insurance programs.
•OurU.S. Federal Services
From technology solutions to program administration and operations, our U.S. Federal Services Segment provides program administration,delivers end-to-end solutions that help various U.S. Federal Government Agencies better deliver on their mission. This also includes appeals and assessments services, and technology solutions, including system and softwareapplication development, IT modernization, and maintenance services, for various U.S. federal civilian programs.services. The segment also contains certain state-based assessments and appeals work that is part of the segment's heritage within the Medicare Appeals portfolio andwhich continues to be managed within this segment. Benefiting from the Maximus Federal Consulting (formerly Attain Federal) platform, the segment executes on its digital strategy to deliver technology solutions that advance agency missions, including the challenge to modernize, provide better customer experience, and drive process efficiencies. The segment recently expandedcontinues to expand its clinical solutions with the acquisition of VES which manages the clinical evaluation process for U.S. veterans and service members on behalf of the U.S. Department of Veterans Affairs. The segment further supports clinical offerings in public health with new work supporting the U.S. Federal Government's COVID-responseCOVID-19 response efforts. This included expanded work with the Centers for Disease Control and Prevention (CDC)("CDC") for their helpline an outbound customer support center for the Office of the Assistant Secretary for Health to notify individuals throughout the U.S. of their COVID test result, and increased support for the IRS Wage and Investment Division's response efforts to
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general inquiries regarding the Coronavirus Aid Relief & Economic Security (CARES)("CARES") Act and Economic Impact Payment Service Plan.
•Outside the U.S.
Our Outside the U.S. Segment provides business process services (BPS) solutionsBPS for international governments and commercial clients. Theseclients, transforming the lives of people around the world. Helping people find employment, access vital support, and remain healthy, these services include health and disability assessments, program administration for employment services, wellbeing solutions, and other job seeker-relatedseeker related services. We support programs and deliver services in the United Kingdom (U.K.)U.K., including the Health Assessment Advisory Service (HAAS)("HAAS"), the Work & Health Programme, Fair Start, and Fair Start;Restart; Australia, including jobactive and the Disability Employment Service; Canada, including Health Insurance British Columbia and the Employment Program of British Columbia; in addition to Italy, Saudi Arabia, Singapore, South Korea, and Sweden, where we predominantly provide employment support and job seeker services.
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Table 3: Results of Operation by Business Segment (1)
For the Three Months Ended
December 31, 2021December 31, 2020
Amount% (2)Amount% (2)
(dollars in thousands)
Revenue:
U.S. Services$386,417 $384,934 
U.S. Federal Services581,871 405,245 
Outside the U.S.182,588 155,375 
Revenue$1,150,876 $945,554 
Gross profit:
U.S. Services$89,699 23.2 %$99,002 25.7 %
U.S. Federal Services126,576 21.8 %82,496 20.4 %
Outside the U.S.11,880 6.5 %24,557 15.8 %
Gross profit$228,155 19.8 %$206,055 21.8 %
Selling, general, and administrative expenses:
U.S. Services$35,102 9.1 %$37,456 9.7 %
U.S. Federal Services64,925 11.2 %52,252 12.9 %
Outside the U.S.21,340 11.7 %20,032 12.9 %
Other (3)2,854 NM2,227 NM
Selling, general, and administrative expenses$124,221 10.8 %$111,967 11.8 %
Operating income:
U.S. Services$54,597 14.1 %$61,546 16.0 %
U.S. Federal Services61,651 10.6 %30,244 7.5 %
Outside the U.S.(9,460)(5.2) %4,525 2.9 %
Amortization of intangible assets(22,405)NM(6,516)NM
Other (3)(2,854)NM(2,227)NM
Operating income$81,529 7.1 %$87,572 9.3 %
(1)Expenses that are not specifically included in the segments are included in other categories, including amortization of intangible assets and the direct costs of acquisitions. These costs are excluded from measuring each segment's operating performance.
 Three Months Ended December 31,
(in thousands)2020% (1)2019% (1)
Revenue:
U.S. Services$384,934 $312,281 
U.S. Federal Services405,245 366,571 
Outside the U.S.155,375 139,377 
Total$945,554 $818,229 
Gross profit:
U.S. Services$99,002 25.7%$89,590 28.7%
U.S. Federal Services82,496 20.4%70,821 19.3%
Outside the U.S.24,557 15.8%15,039 10.8%
Total$206,055 21.8%$175,450 21.4%
Selling, general & administrative expense:
U.S. Services$37,456 9.7%$31,398 10.1%
U.S. Federal Services52,252 12.9%39,239 10.7%
Outside the U.S.20,032 12.9%16,053 11.5%
Other (2)2,227 NM537 NM
Total$111,967 11.8%$87,227 10.7%
Operating income:
U.S. Services$61,546 16.0%$58,192 18.6%
U.S. Federal Services30,244 7.5%31,582 8.6%
Outside the U.S.4,525 2.9%(1,014)(0.7)%
Amortization of intangible assets(6,516)NM(9,088)NM
Acquisition-related expenses(1,873)NM0 NM
Other (2)(354)NM(537)NM
Total$87,572 9.3%$79,135 9.7%

(2)
(1) Percentage of respective segment revenue. Percentages not considered meaningful are marked “NM.”"NM."

(3)
(2) Other selling, general, and administrative expenses includes credits and costs that are not allocated to a particular segment.

 This includes expenses incurred as part of our acquisitions, as well as potential acquisitions which have not been or may not be completed.
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Identifiable assets for the segments are shown below:4. REVENUE RECOGNITION
(in thousands)December 31, 2020September 30, 2020
U.S. Services$729,573 $702,728 
U.S. Federal Services889,220 937,477 
Outside the U.S.228,779 224,532 
Corporate218,661 159,965 
Total$2,066,233 $2,024,702 

3. Revenue Recognition

We recognizeThe Company recognizes revenue as, or when, we satisfy performance obligations under a contract. The majority of our contracts have performance obligations which are satisfied over time. In most cases, we view our performance obligations as promises to transfer a series of distinct services to our customercustomers that are substantially the same and which have the same pattern of service. We recognize revenue over the performance period as a customer receives the benefits of our services.
Disaggregation of revenueRevenue
In addition to our segment reporting, we disaggregate our revenues by service, contract type, customer type, and geography. Our operating segments represent the manner in which our Chief Executive Officer reviews our financial results, which is further discussed in "Note 2. Segment Information.3. Business Segments."
By operating segment and service
Table 4.1: Revenue by Contract Type
For the Three Months Ended
December 31, 2021December 31, 2020
(in thousands)
Performance-based$490,956 $293,960 
Cost-plus340,081 384,483 
Fixed price151,505 120,777 
Time and materials168,334 146,334 
Total revenue$1,150,876 $945,554 
Three Months Ended December 31,
(in thousands)20202019
Program administration$293,844 $236,907 
Assessments and appeals32,615 33,831 
Workforce and children services47,821 29,386 
Other10,654 12,157 
Total U.S. Services$384,934 $312,281 
Program administration$327,790 $281,688 
Technology solutions34,664 43,606 
Assessments and appeals42,791 41,277 
Total U.S. Federal Services$405,245 $366,571 
Workforce and children services$77,462 $57,239 
Assessments and appeals53,123 62,643 
Program administration23,056 17,094 
Other1,734 2,401 
Total Outside the U.S.$155,375 $139,377 
Total revenue$945,554 $818,229 
Table 4.2: Revenue by Customer Type
For the Three Months Ended
December 31, 2021December 31, 2020
(in thousands)
U.S. state government agencies$371,547 $388,114 
United States Federal Government agencies564,094 385,573 
International government agencies171,375 147,342 
Other, including local municipalities and commercial customers43,860 24,525 
Total revenue$1,150,876 $945,554 

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By contract type
Three Months Ended December 31,
(in thousands)20202019
Performance-based$293,960 $292,758 
Cost-plus384,483 362,811 
Fixed price120,777 119,216 
Time and materials146,334 43,444 
Total revenue$945,554 $818,229 

By customer type
Three Months Ended December 31,
(in thousands)20202019
New York State government agencies$75,356 $97,223 
Other U.S. state government agencies312,758 209,886 
Total U.S. state government agencies388,114 307,109 
United States Federal Government agencies385,573 351,833 
International government agencies147,342 130,816 
Other, including local municipalities and commercial customers24,525 28,471 
Total revenue$945,554 $818,229 

By geography
Three Months Ended December 31,
(in thousands)20202019
United States$790,179 $678,852 
United Kingdom64,786 73,002 
Australia55,932 37,435 
Rest of world34,657 28,940 
Total revenue$945,554 $818,229 

Table 4.3: Revenue by Geography
For the Three Months Ended
December 31, 2021December 31, 2020
(in thousands)
United States$968,288 $790,179 
United Kingdom85,807 64,786 
Australia52,814 55,932 
Rest of world43,967 34,657 
Total revenue$1,150,876 $945,554 
Contract balances
Differences in timing between revenue recognition and cash collection result in contract assets and contract liabilities. We classify these assets as accounts receivable — billed and billable and unbilled receivables; the liabilities are classified as deferred revenue.
In many contracts, we bill our customers on a monthly basis shortly after the month end for work performed in that month. FundsThese balances are considered collectible and are included within accounts receivable — billed and billable.

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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’scontract's share of our general and administrative expenses. This share is based upon estimates of total costs which may vary over time. We typically invoice our customers at an agreed provisional billing rate which may differ from actual rates incurred. If our actual rates are higher than the provisional billing rates, an asset is recorded for this variance; if the provisional billing rates are higher than our actual rates, we record a liability.
•Certain contracts include retainage balances, whereby revenue is earned but some portion of cash payments are held back by the customer for a period of time, typically to allow the customer to confirm the
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objective criteria laid out by the contract have been met. This balance is classified as accounts receivable -— unbilled until restrictions on billing are lifted. As of December 31, 2021 and September 30, 2021, $12.5 million and $10.4 million, respectively, of our unbilled receivables related to amounts pursuant to contractual retainage provisions.
•In certain contracts, we may receive funds from our customers prior to performing operations. These funds are typically referred to as “set-up costs”"set-up costs" and reflect the need for us to make investments in infrastructure prior to providing a service. This investment in infrastructure is not a performance obligation which is distinct from the service that is subsequently provided and, as a result, revenue is not recognized based upon the establishment of this infrastructure, but rather over the course of the contractual relationship. The funds are initially recorded as deferred revenue and recognized over the term of the contract. Other contracts may not include set-up fees but will provide higher fees in earlier periods of the contract. The premium on these fees is deferred.
•Some of our contracts, notably our employment services contracts in the Outside the U.S. Segment, include payments for desired outcomes, such as job placement and job retention, and these outcome payments occur over several months. We are required to estimate these outcome fees ahead of their realization and recognize this estimated fee over the period of delivery.

OfDuring the three months ended December 31, 2021, we recognized revenue of $41.2 million included in our deferred revenue forbalances as of September 30, 2021. During the three months ended December 31, 2020, approximately $14.0 million was from cash payments made to us prior to October 1, 2020. For the three months ended December 31, 2019, we recognized revenue of $18.0$14.0 million from payments made prior to October 1, 2019.included in our deferred revenue balances at September 30, 2020.
Contract estimates
We are required to use estimates in recognizing revenue from some of our contracts. As discussed in "Note 1. Organization and Basis of Presentation,2. Significant Accounting Policies," the calculation of these estimates has been complicated by the COVIDCOVID-19 pandemic, which has reduced our ability to use past results to estimate future performance.
Some of our performance-based contract revenue is recognized based upon future outcomes defined in each contract. This is the case in many of our employment services contracts in the Outside the U.S. Segment, where we are paid as individuals attain employment goals, which may take many months to achieve. We recognize revenue on these contracts over the period of performance. Our estimates vary from contract to contract but may include estimates of the number of participants, the length of the contract, and the participants reaching employment milestones. We are required to estimate these outcome fees ahead of their realizationcollection and recognize this estimated fee over the period of delivery. In almost all of the jurisdictions in which we operate, the employment markets have experienced significant changes due to the COVID pandemic. For our existing program participants, many employment opportunities have been terminated or are no longer available. Our volume of new program participants is beginning to increase as governments shift their focus to tackling the residual impacts of the pandemic such as the economy and unemployment, particularly in those countries where the pandemic has stabilized and economies are beginning to reopen. However, it is unclear as to when employers will begin filling roles in industries that remain curtailed. In some cases, we anticipate that we may be unable to place individuals in employment in the short-term.
Other performance-based contracts with future outcomes include those where we recognize an average effective rate per participant based upon the total volume of expected participants. In this instance, we are required to estimate the amount of discount applied to determine the average rate of revenue per participant. Our revised estimates of participant numbers are based upon our updated evaluation of probable future volumes.
Where we make changesChanges to our estimates these are recognized on a cumulative catch-up basis. InFor the three months ended December 31, 2021, we reported a reduction in revenue and diluted earnings per share of $4.7 million and $0.05, respectively, from changes in estimates. The corresponding change for the three months ended December 31, 2020, we reportedwas a benefit to revenue of $10.2 million and a benefit to diluted earnings per share of $10.2 million and $0.12, from changes in estimates. The corresponding change in fiscal year 2020 was a decline of $1.4 million.
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.
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Three Months Ended December 31,
(in thousands)20202019
Deferred contract cost capitalization$2,491 $1,300 
Deferred contract cost amortization2,287 2,200 
This amortization was recorded within our "cost of revenue" on our consolidated statements of operations.respectively.
Remaining performance obligations
AtAs of December 31, 2020,2021, we had approximately $400$570 million of remaining performance obligations. We anticipate that we will recognize revenue on approximately 55%50% of this balance within the next 12 months. This balance excludes contracts with an original duration of twelve months or less, including contracts with a penalty-free termination for convenience clause, and any variable consideration which is allocated entirely to future performance obligations, including variable transaction fees or fees tied directly to costs incurred.
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4. Earnings Per Share5. EARNINGS PER SHARE
Table 5: Weighted Average Number of Shares - Earnings Per Share
For the Three Months Ended
December 31, 2021December 31, 2020
(in thousands)
Basic weighted average shares outstanding62,262 62,038 
Dilutive effect of unvested RSUs and PSUs183 97 
Denominator for diluted earnings per share62,445 62,135 
The weighted average number of shares outstanding used to computediluted earnings per share was as follows:
 Three Months Ended December 31,
(shares in thousands)20202019
Basic weighted average shares outstanding62,038 64,597 
Dilutive effect of unvested RSUs97 161 
Denominator for diluted earnings per share62,135 64,758 

Our dilutive earnings per sharecalculation for the three months ended December 31, 2021 and 2020, excludes approximately 135,490 and 2019, excludes any effect from approximately 0.6 million and 0.3 million595,000 unvested restrictedanti-dilutive stock units, respectively, as adding themrespectively.
6. BUSINESS COMBINATIONS
VES Group, Inc. (VES)
On May 28, 2021, the Company acquired 100% of VES for an estimated cash purchase price of $1.36 billion (the "VES Acquisition"). The final purchase price is subject to adjustment and is expected to be finalized during 2022. This business was integrated into our calculation would be antidilutive.U.S. Federal Services Segment and is expected to increase revenue attributable to providing independent and conflict-free clinical business process services ("BPS"). The VES Acquisition also supports our ongoing strategic priority of expansion into the U.S. Federal market and accelerates our clinical evolution to meet long-term demand for BPS with a clinical dimension. As of December 31, 2021, we have completed our assessment of all acquired assets and liabilities assumed, except income taxes and working capital true-up.
Table 6.1: VES Valuation
Allocation of Assets and Liabilities as of September 30, 2021AdjustmentsEstimated Allocation
of Assets
and Liabilities as of
December 31, 2021
(in thousands)
Consideration paid:
Cash consideration paid, net of cash acquired$1,360,231 $— $1,360,231 
Estimated additional cash payments4,635 — 4,635 
Estimated cash consideration, net of cash acquired1,364,866 — 1,364,866 
Assets acquired:
Accounts receivable - billed, billable and unbilled$44,078 $— $44,078 
Prepaid expenses and other current assets7,955 — 7,955 
Property and equipment, net9,113 (1,092)8,021 
Operating lease right-of-use assets18,898 — 18,898 
Intangible assets664,000 — 664,000 
Other assets7,166 — 7,166 
Total identifiable assets acquired751,210 (1,092)750,118 
Liabilities assumed:
Accounts payable and accrued compensation42,182 — 42,182 
Operating lease liabilities18,898 — 18,898 
Income taxes payable, current5,673 — 5,673 
Deferred income taxes171,497 — 171,497 
Other long-term liabilities12,270 — 12,270 
Total identifiable liabilities assumed250,520 — 250,520 
Net identifiable assets acquired500,690 (1,092)499,598 
Goodwill864,176 1,092 865,268 
Net assets acquired$1,364,866 $— $1,364,866 

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5. Business combinationsGoodwill represents the value of the assembled workforce and the enhanced knowledge, capabilities, and qualifications held by the business. This goodwill balance is not deductible for tax purposes.
InjuryNet Australia PtyOur evaluation of the intangible assets acquired with VES identified 3 assets. The assets were valued using methods which required a number of estimates and, accordingly, they are considered Level 3 measurements within the Accounting Standard Codification No. 820 (ASC 820) fair value methodology.
•Customer relationships represent the value of the existing contractual relationships with the United States Federal Government. These were valued using the excess earnings method, which required us to utilize estimated future revenues and earnings from contracts and an appropriate rate of return.
•VES maintains a provider network of third-party providers that assist in the performance of their clinical services. This network was valued using the cost method and income approach, which included both the cost of recreating such a network and the profits foregone during the time which would be required to recreate the network and an appropriate rate of return.
•VES maintained proprietary technology which interacted with U.S. Federal Government systems, facilitated the transmission of examination data, and supported the performance of the contracts. We valued the technology using a relief-from-royalty method, which required us to estimate future revenues and an arm's length royalty rate that a third-party provider might use to supply this service and an appropriate rate of return.
Table 6.2: VES Intangible Asset Values and Useful Lives
Estimated Straight-Line Useful LifeEstimated Fair Value
(in thousands)
Customer contracts and relationships12 years$580,000 
Provider network12 years57,000 
Technology-based intangible assets12 years27,000 
Total intangible assets$664,000 
In connection with certain liabilities acquired in the VES acquisition, we established a liability of $12.0 million for a billing dispute between VES and its customer relating to prior year billings. Our exposure is partially offset by an indemnification asset of $6.0 million. During the first quarter of fiscal year 2022, the liability has been agreed as $12.0 million. We expect to settle the liability in the second quarter of fiscal year 2022 and recover the indemnification balance from the escrow fund. In addition, we have established a tax liability of $12.3 million for uncertain tax positions within VES, partially offset by another indemnification asset of $7.2 million.
Connect Assist Holdings Limited ("Connect Assist")
On February 28, 2020,September 14, 2021, we acquired 100% of the share capital of InjuryNet Australia Pty Limited (InjuryNet)Connect Assist for an estimated purchase price of $4.4$21.1 million ($6.7(£15.5 million Australian Dollars), which included acquisition-related contingent consideration estimated at $2.1 million ($3.1 million Australian Dollars) based upon future earnings. The purchase price was subjectBritish Pounds). We acquired this business to adjustment for a working capital true-upimprove our contact center services and acquisition-related contingent consideration. InjuryNet provides workplace medical services in Australia.qualifications within the United Kingdom. The business was integrated into our Outside the U.S. Segment. We have completed oura preliminary assessment of all acquired assets and liabilities assumed, with the exception of matters related to taxation. We recorded estimated goodwill and intangible assets of $2.6 million and $0.9 million, respectively, related to the acquisition.
Index Root Korea Co. Ltd.
On August 21, 2020, we acquired 100% of the share capital of Index Root Korea Co. Ltd (Index Root) for an estimated purchase price of $5.4 million (6.3 billion South Korean Won), which includes acquisition-related contingent consideration estimated at $0.9 million (1.1 billion South Korean Won) based upon future earnings. We acquired Index Root to expand our geographic presence to South Korea. The business was integrated into our Outside the U.S. Segment. We are still in the process of finalizing the allocation of assets acquired and liabilities assumed. We recorded estimated goodwill and intangible assets of $4.6$11.3 million and $1.4$7.7 million, respectively, related to the acquisition.

6. Leases
Lease expense is recorded within our consolidated statements of operations based upon the nature of the assets. Where assets are used to directly serve our customers, such as facilities dedicated to customer contracts,
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lease costs are recorded in "cost of revenue." Facilities and equipment which serve management and support functions are expensed through "selling, general and administrative expenses." Costs recorded in During the three months ended December 31, 20202021, we reported $5.8 million and 2019,$2.2 million of revenue and gross profit, respectively, from Connect Assist.
Aidvantage
On October 6, 2021, we completed the acquisition of the student loan servicing business from Navient, rebranded as Aidvantage. The purchase price consideration is contingent upon future operating performance, up to a maximum payment of $65.0 million. At this time, we estimate that total payments will total approximately $15.3 million; this will increase if the number of student loans we are summarized below.servicing increases or if the contractual relationship we have acquired is extended beyond its current anticipated end date of December 31, 2023. In the event that our anticipated future expense exceeds $15.3 million, we will record any difference as a charge to our statement of operating income. We recorded intangible assets related to the customer relationship of $14.9 million, which we are amortizing over 27 months. This business is a part of our U.S. Federal Services Segment and supplements our existing portfolio of services to the U.S. Department of Education. We are still in the process of completing our valuation of the assets acquired and the contingent consideration.
Three Months Ended December 31,
(in thousands)20202019
Operating lease cost$27,734 $25,250 
Short-term lease cost1,889 2,110 
Variable lease cost3,015 3,334 
Total operating lease costs$32,638 $30,694 
During the three months ended December 31, 2021, we reported $34.7 million and $2.0 million of revenue and gross profit, respectively, from Aidvantage.
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7. DEBT
Table 7.1: Details of Debt
December 31, 2021September 30, 2021
(in thousands)
Term Loan A, due 2026$1,072,500 $1,086,250 
Term Loan B, due 2028398,000 399,000 
Subsidiary loan agreements36,564 38,281 
Revolver100,000 — 
Total debt principal1,607,064 1,523,531 
Less: Unamortized debt-issuance costs and discounts(13,272)(13,839)
Total debt1,593,792 1,509,692 
Less: Current portion of long-term debt(78,703)(80,555)
Long-term debt$1,515,089 $1,429,137 
On May 28, 2021, we entered into a credit agreement with JPMorgan Chase Bank, N.A., as Administrative Agent ("Credit Agreement"), which replaced our existing revolving credit facility. The Credit Agreement provided for the following three components.

•$1.10 billion term loan facility ("Term Loan A") which matures on May 28, 2026;
Future minimum lease payments•$400.0 million term loan facility ("Term Loan B") which matures May 28, 2028; and
•$600.0 million revolving credit facility ("Revolver") which matures May 28, 2026.
The interest rates applicable to loans under the Credit Agreement are floating rates based upon the London Interbank Offered Rate ("LIBOR") plus a margin. Term Loan A and the Revolver margins are dependent upon our leverage ratio. Term Loan B is set to LIBOR plus 2.00% subject to a floor of 0.50%. At execution of the Credit Agreement, the interest rates for noncancelable operating leasesTerm Loan A and the Revolver was LIBOR plus 1.75%. During the first quarter of fiscal quarter 2022, we were able to lower our interest rates on both Term Loan A and the Revolver to LIBOR plus 1.50% based on the attainment of a total leverage ratio of 2.50 or better. As of December 31, 2021 the net total leverage ratio was 2.47. If the Company is able to achieve a net total leverage ratio of 2.00, the interest rates for Term Loan A and the Revolver could be further lowered to LIBOR plus 1.375%, conversely if the net leverage ratio increases to 2.50 or greater, the rate would revert back to LIBOR plus 1.75%. LIBOR is anticipated to be phased out over the next 18 months, and alternative benchmark rates have been identified in this agreement. This is the only significant arrangement within the Company that utilizes LIBOR. As of December 31, 2021, the annual effective interest rate, including original issue discount and amortization of debt issuance costs, was 2.3%.
The Credit Agreement is available for general corporate purposes, including the funding of working capital, capital expenditures, and possible future acquisitions. In addition to borrowings, it allows us to continue to issue letters of credit when necessary. As of December 31, 2021, the Company had $100.0 million outstanding balance on the corporate Revolver.
Under the terms of the Credit Agreement, the Company is required to comply with certain covenants, the terms of which are customary and include a net total leverage ratio and a net interest coverage ratio. The net total leverage ratio is calculated as total outstanding debt and contingent consideration liabilities less the lower of (a) unrestricted cash or (b) $75.0 million. With certain exceptions, the covenant requires the net total leverage ratio, as defined by the Credit Agreement to be less than 4.0, calculated over the previous twelve months. The net interest coverage ratio is calculated as earnings before interest, depreciation, and amortization ("EBITDA") divided by interest expense, over the previous twelve months, all defined by the Credit Agreement. The covenant requires a net interest coverage ratio of 3.0 or greater. As of December 31, 2021, as defined by the Credit Agreement, the Company calculated a net total leverage ratio of 2.47 and net interest coverage ratio of 16.4. The Company was in compliance with all applicable covenants under the Credit Agreement as of December 31, 2020,2021 and September 30, 2021. We do not believe that the covenants represent a significant restriction to our ability to successfully operate the business or to pay our dividends.
Costs incurred in establishing the Credit Agreement have been reported as a reduction to the gross debt balance and will be amortized over the respective lives of the arrangements. In addition to the corporate Credit Agreement, we hold smaller credit facilities in Australia and the United Kingdom. These allow our businesses to borrow to meet any short-term working capital needs.
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Table 7.2: Details of Future Minimum Principal Payments Due
Amount Due
(in thousands)
January 1, 2022 through September 30, 2022$65,035 
Year ended September 30, 202372,927 
Year ended September 30, 202493,482 
Year ended September 30, 202595,120 
Year ended September 30, 2026901,500 
Thereafter379,000 
Total payments$1,607,064 
8. DERIVATIVES
Interest Rate Derivative Instrument
In June 2021, the Company entered into an interest rate swap agreement for a notional amount of $300.0 million, effective June 28, 2021, with an expiration date of May 28, 2026, which hedges the floating LIBOR on a portion of the term loan (Term Loan A, $1.10 billion balance) under the Credit Agreement to a fixed rate of 0.986%. The Company elected to designate this interest rate swap as a cash flow hedge for accounting purposes.
As this cash flow hedge is considered effective, any future gains and losses are shown below.
(in thousands)Office spaceEquipmentTotal
For the years ended September 30
Remainder of 2021$52,375 $6,661 $59,036 
202256,388 3,701 60,089 
202331,731 537 32,268 
202414,715 54 14,769 
20259,788 9 9,797 
Thereafter2,219 0 2,219 
Total minimum lease payments$167,216 $10,962 $178,178 
Less: imputed interest(9,748)(270)(10,018)
Total lease liabilities$157,468 $10,692 $168,160 

reflected within Accumulated Other information related to leasesComprehensive Income in the Consolidated Statements of Comprehensive Income. Derivatives in a net asset position are recorded in "Prepaid expenses and other current assets" on our Consolidated Balance Sheets and derivatives in a net liability position are recorded in "Other current liabilities" on our Consolidated Balance Sheets. No ineffectiveness was as follows:recorded on this contract during the three months ended December 31, 2021.
Table 8.1: Details of Derivatives Fair Value
December 31, 2021September 30, 2021
(in thousands)
Assets:
Interest rate swap$3,233 $— 
Total assets$3,233 $— 
Liabilities:
Interest rate swap$— $410 
Total liabilities$— $410 
Table 8.2: Gains on Derivatives
For the Three Months Ended
December 31, 2021December 31, 2020
Weighted average remaining lease term (in years)2.8(in thousands)
Weighted average incremental borrowing rateNet gains recognized in AOCI on derivatives, net of tax (1)$2,177 3.81 $%— 
Amounts reclassified to earnings from accumulated other comprehensive loss (2)508 — 
Net current period other comprehensive income$2,685 $— 

(1)Amount is net of tax expense of $0.8 million for the three months ended December 31, 2021.
Supplemental cash flow information(2)Amount is net of tax benefit for $0.2 million for the three months ended December 31, 2021.
Counterparty Risk
The Company is exposed to credit losses in the event of nonperformance by the counterparty to our derivative instrument. Our counterparty has investment grade credit ratings; accordingly, we anticipate that the counterparty will be able to fully satisfy its obligations under the contracts. Our agreements outline the conditions upon which it or the counterparty are required to post collateral. As of December 31, 2021, there was no collateral posted with its counterparty related to leasesthe derivatives.
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9. FAIR VALUE
The Company had 2 assets recorded at fair value on a recurring basis as of December 31, 2021, the deferred compensation asset, related to the portion invested in mutual funds and the interest rate swap. For the deferred compensation asset, the mutual funds prices are quoted in active markets and therefore are classified as Level 1. For the interest rate swap, the Company obtains its Level 2 pricing inputs from its counterparty for the interest rate swap. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace. As of December 31, 2021, the Company had 1 liability recorded at fair value on a recurring basis for contingent consideration related to acquisitions. The contingent consideration liability is considered Level 3, as the inputs are not observable and based on internal assumptions about forecasted revenues, margins, volumes, and probability of contract extensions on businesses acquired.
The fair values of receivables, prepaids, other assets, accounts payable, accrued costs, and other current liabilities approximate the carrying values as a result of the short-term nature of these instruments. The carrying value of debt was $1.59 billion and $1.51 billion as follows:of December 31, 2021 and September 30, 2021, respectively, approximates the fair value as the stated interest rates in the agreements are consistent with the current market rates used in notes with similar terms in the markets (Level 2 inputs).
Three Months Ended December 31,
(in thousands)20202019
Cash payments included in the measurement of lease liabilities$28,513 $28,100 
Operating lease liabilities arising from new or remeasured right-of-use assets9,004 17,300 

Table 9: Fair Value
As of December 31, 2021
Level 1Level 2Level 3Balance
(in thousands)
Assets:
Deferred compensation assets - Rabbi Trust$30,065 $— $— $30,065 
Interest rate swap— 3,233 — 3,233 
Total assets$30,065 $3,233 $— $33,298 
Liabilities:
Contingent consideration$— $— $15,602 $15,602 
Total liabilities$— $— $15,602 $15,602 
7. Supplemental Disclosures10. EQUITY
Stock Compensation
The Company grants restricted stock units ("RSUs") and performance stock units ("PSUs") to eligible participants under its 2017 Stock Incentive Plan, which was approved by the Board of Directors and stockholders. The RSUs granted to employees vest ratably over three to five years and one year for members of the board of directors, in each case from the grant date. PSU vesting is subject to the achievement of certain performance and market conditions and the number of PSUs earned could vary from 0% to 200% of the number of PSUs awarded. The PSUs will vest at the end of a three year-performance period. We issue new shares to satisfy our obligations under these plans. The fair value of each RSU and PSU is calculated at the date of the grant.
During the three months ended December 31, 2021, we issued approximately 287,000 RSUs, which will vest ratably over three or four years, and approximately 87,000 PSUs, which will vest ratably over three years.
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Accumulated Other Comprehensive Income
Table 10: Details of Changes in Accumulated Other Comprehensive Loss by Category
Foreign currency translation adjustmentNet unrealized (loss)/gain on derivatives, net of taxTotal
(in thousands)
Balance as of September 30, 2021$(39,605)$(303)$(39,908)
Other comprehensive income before reclassifications459 2,177 2,636 
Amounts reclassified from accumulated other comprehensive loss— 508 508 
Net current period other comprehensive income459 2,685 3,144 
Balance as of December 31, 2021$(39,146)$2,382 $(36,764)
Stock Repurchase Programs
Under a resolution adopted in March 2020, the Board of Directors authorized the purchase, at management's discretion, of up to $200$200.0 million of our common stock. This supplemented a similar resolution adopted in June 2018. During the three months ended December 31, 2021 and 2020, wethe Company purchased approximately 52,000 of our18,403 and 51,735 common shares at a cost of $1.4 million and $3.4 million. During the three months endedmillion, respectively. As of December 31, 2019, we purchased approximately 26,000 common shares at a cost of $1.9 million. At December 31, 2020, $146.72021, $145.3 million remained available for future stock repurchases.
During the three months ended December 31, 2020, we granted approximately 257,000 restricted stock units (RSUs) to our employees. Most of these awards will vest ratably over four years, as opposed to five years in
13

11. CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
previous years. In addition, we awarded approximately 85,000 performance stock units in the three months ended December 31, 2020, to certain executives that will vest at the end of a three-year performance period with the actual number of vested units dependent upon the Company's achievement of certain performance targets.
Table 11.1: Details of Cash and Cash Equivalents and Restricted Cash
December 31, 2021September 30, 2021
(in thousands)
Cash and cash equivalents$181,790 $135,061 
Restricted cash (1)20,822 21,509 
Cash, cash equivalents, and restricted cash$202,612 $156,570 

(1)
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 (Level 1), and the life insurance investments at cash surrender value; changes in value are reported in our consolidated statements of operations. At December 31, 2020, the deferred compensation plan held $26.1 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 debt balances are principally from credit facilities which can be utilized and repaid as required and whose rates are based upon prevailing market conditions; accordingly, we believe the balance disclosed approximates the fair value. 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 31, 2020. Restricted cash represents funds which are held in our bank accounts but which we are precluded from using for general business needs through contractual requirements; these requirements include serving as collateral for lease, credit card, or letter of credit arrangements, or where we hold funds on behalf of clients. Restricted cash is includedrecorded within "prepaid"Prepaid expenses and other current assets" on the Consolidated Balance Sheets.
Table 11.2: Supplemental Disclosures of Cash Flow Information
For the Three Months Ended
December 31, 2021December 31, 2020
(in thousands)
Interest payments$8,943 $203 
Income tax payments8,009 4,093 
12. ACCOUNTS RECEIVABLE, NET
Table 12: Details of Accounts Receivable, Net
December 31, 2021September 30, 2021
(in thousands)
Billed and billable receivables$717,804 $718,728 
Unbilled receivables139,348 124,135 
Allowance for credit losses(7,742)(8,044)
Accounts receivable, net$849,410 $834,819 
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13. PROPERTY AND EQUIPMENT, NET
Table 13: Details of Property and Equipment, Net
December 31, 2021September 30, 2021
(in thousands)
Land$— $1,738 
Building and improvements— 11,981 
Office furniture and equipment245,110 254,102 
Leasehold improvements79,613 79,938 
Property and equipment, at cost324,723 347,759 
Accumulated depreciation(271,096)(285,132)
Property and equipment, net$53,627 $62,627 
As of December 31, 2021, we classified as held for sale 1 building and the associated land with a carrying value of $5.4 million within "Prepaid expenses and other current assets" on our consolidated balance sheets and is included within "cash, cash equivalents, and restricted cash" in our consolidated statementsConsolidated Balance Sheets. As of cash flows. A reconciliation of these balances is shown below.
 Balance as of
(in thousands)December 31,
2020		September 30, 2020December 31,
2019
Cash and cash equivalents$132,597 $71,737 $149,515 
Restricted cash (recorded within "prepaid expenses and other current assets")17,221 16,824 11,434 
Cash, cash equivalents, and restricted cash$149,818 $88,561 $160,949 

During each of the three months ended December 31, 2020 and 2019,2021, we made interest paymentsconcluded the fair value less the costs to sell exceeds the carrying value of $0.2 million.
During the three months ended December 31, 2020 and 2019, we made income tax payments of $4.1 million and $6.3 million, respectively.

this asset.
8. 14. COMMITMENTS AND CONTINGENCIES
Litigation
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,federal, 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 debarment. 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 federal, 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.
Medicaid claims
The Centers for Medicare and Medicaid Services (CMS) has asserted two2 disallowances against a state Medicaid agency totalingagency. The state contested the first disallowance and ultimately settled that claim for approximately $31$7.3 million. The second disallowance of approximately $19.9 million is still being contested by the state. The state is seeking reimbursement from us for the first disallowance of $7.3 million and has indicated its intention to seek reimbursement of the second disallowance if its legal challenge is unsuccessful. From 2004 through 2009, we had a contract with the state
14

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 reservedrecorded a liability of our estimated fees earned from this engagement relating to the disallowances. We exited the federal healthcare-claiming business in 2009 and no longer provide the services at issue in this matter. The state contested the first disallowance of approximately $12 million in U.S. District Court. In February 2020, the District Court upheld that disallowance, and the state has appealed the case to the U.S. Circuit Court of Appeals. The second disallowance of approximately $19 million is still pending at the U.S. Health and Human Services Departmental Appeals Board. No legal action has been initiated against us with respect to either disallowance.

9. Subsequent Events15. SUBSEQUENT EVENT
On January 8, 2021,7, 2022, our Board of Directors declared a quarterly cash dividend of $0.28 for each share of our common stock outstanding. The dividend is payable on February 26, 2021,28, 2022, to shareholders of record on February 12, 2021.15, 2022. Based upon the number of shares outstanding, we anticipate a cash payment of approximately $17$17.3 million.
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Item 2.Management’s Management's Discussion and Analysis of Financial Condition and Results of Operations.Operations
The following discussion and analysis ofis intended to help the reader understand our business, financial condition, and results of operations, is provided to enhance the understanding of,liquidity and capital resources. You should be read this discussion in conjunction with "Risk Factors," "Forward-Looking Statements," and our Consolidated Financial Statementsfinancial statements and related Notesnotes included both herein and in our Annual Report on Form 10-K for thefiscal year ended September 30, 2020, which was2021 filed with the Securities and Exchange Commission on November 19, 2020.18, 2021 (the "2021 Form 10-K") and elsewhere in this Quarterly Report on Form 10-Q, as applicable.

Business Overview
We are a U.S.-based global company with approximately 34,000 employees dedicated to helping governments on four continents administer theirleading operator of government health and human services programs worldwide. We are a responsible and reliable contracting partner to governments under our mission of Helping Government Serve the People®. Governments rely on our financial stability and proven expertise in helping people connect and use critical government programs. We use our experience, business process management expertise, innovation, and technology solutions to help people connectgovernment agencies run effective, efficient, and accountable programs.
Our primary portfolio of work is tied to business process services ("BPS") in the health services and interact with vital government programs so that they receivehuman services markets. Our growth over the necessary support they are eligible to receive. The demand for the provision of these services islast decade was driven by numerous factors including aging populations with complex health care needs; rising living standards in emerging markets creating new demands for our services; growing complexity of programs,work, such as that from the Affordable Care Act ("ACA") in the United States ("U.S."), an evolving eligibility requirements; the creation of new programs and initiatives such as long-term services and support, and the urgent need to support a surge in demand to help governments respond to the public health emergency. The pandemic has required governments to implement new operational models to ensure public safety and this has led to an increased appetite for public-private partnerships due to availability of increased flexibility, scalability, and accountability, particularly in a time when government customers are looking for ways to dramatically increase servicesdigital transformation to meet the surgingmodernization needs of our clients, and growing demand for independent and subsequent strain on their agencies.conflict-free clinical services including assessments, appeals, and independent medical reviews in multiple geographies. Our growth has been supplemented by strategic acquisitions.
Maximus operates in a sector with relatively few environmental and social-issue risks but many opportunities, particularly ones that enable us to improve the lives of individuals and families, and provide meaningful opportunities to our employees. We run programs that connect people with disabilities and long-term health conditions to sustainable, long-term employment and we help people, including many of society's most vulnerable populations, access, connect to, and use government benefit programs, such as Medicaid and Medicare.
2020 was an unprecedented year for the world as a result of the Coronavirus (COVID) global pandemic, and Maximus experienced both favorable and unfavorable impacts as a result. Underscoring the importanceresult of the services we provide, many of our U.S. contracts were designated as ‘‘essential’’ by government agencies in the midst of COVID. Continued operations of these programs ensure vulnerable individuals and families can access vital healthcare and safety-net services during these uncertain times.
Our primary objective amidst this pandemic is to protect our employees while ensuringCoronavirus ("COVID-19") global business continuity of our essential services to help vulnerable individuals and taking responsible action to stop the virus from spreading further. The safety and well-being of our employees are paramount, and we made several sweeping changes to better serve our employees.
Somepandemic. While some of the programs we support have experienced temporary changes at the direction of our customers which reduced volume, revenue and profit on certain large programsvolumes due to the pandemic. However,pandemic, we have also been successful in winning new contracts tied to meet the urgent need to support public health initiatives such as contactimmediate needs of our customers, including contract tracing and disease investigation, vaccine information lines, and unemployment insurance programs, and supporting efforts around vaccine administration, scheduling, and registration to help governments slowadministration. Proving the spreadvalue of the COVID pandemic.our business model, we have converted a number of these relationships into longer-term contract opportunities. The individuals and families served under these programs are those considered some of the most vulnerable to COVID, andCOVID-19. As a result, we believe our operations support programs that are essentialvital for their safety and well-being.wellbeing.
AcquisitionsWe continue to execute upon our three-fold strategy to accelerate our progress and drive the next phase of our growth through:
To supplement•Digital transformation.We are using digital technologies to transform the experience of our customers and our employees. We believe that these technologies can help our government clients run their programs in a more streamlined manner and make it easier for individuals to interact with these programs.
•Clinical evolution.We are expanding our clinical-related services and are experienced at delivering clinical BPS at scale. We have established an extensive set of services that frequently requires a network of healthcare professionals who can complete clinical assessments, provide occupational health and independent medical review services, and adjudicate complicated benefits appeals. With the formation of Maximus Public Health ("MPH"), we are able to serve as a resource to governments as they respond to public health threats. These efforts include providing health information and COVID-19 test results and vaccination information through our citizen engagement centers in key states and counties across the nation.
•Market expansion.We continue with our existing strategy to expand our markets by bringing our core business,capabilities to new programs and clients, adding new capabilities to access adjacent markets, and through geographic expansion. In fiscal year 2021, we have an active program to identify potential strategic acquisitions. Ourexpanded our clinical assessments and public health work, and completed two acquisitions have successfully enabled usin the United States to increase future organic growth,our digital and clinical capabilities, as well as expandcreate stronger relationships in key U.S. federal government agencies.
The macro-trends for our business processes, knowledgeremain unchanged. As the pandemic has underscored, governments around the world need better solutions to deliver on policy priorities that can change rapidly. Social welfare programs that reflect long-term societal commitments and client relationships into adjacent marketspriorities increasingly face rising demand, shifting demographics, and new geographies. In November 2018, we acquired the citizen engagement centers business previously operated by General Dynamics Information Technology. This acquisition, coupled withunsustainable program costs. We believe that Maximus is well positioned to address these challenges and be a transformative partner through our 2015 acquisitionscalable, cost-effective, and operationally efficient services for a wide range of Acentia, LLC, has provided scale, customer base and competitive advantages in our business with the United States Federal Government. In fiscal year 2020, we acquired InjuryNet in Australia and Index Root in South Korea, which we integrated into our Outside the U.S. Segment. These acquisitions supplement our existing businesses in this segment.

government programs.
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Financial Overview
OurA number of factors have affected our results for the first quarter of fiscal year 2022, the most significant of which we have listed below. More detail on these changes is presented below within our "Results of Operations" section.
•During fiscal year 2021, we acquired VES Group, Inc. ("VES"), the Federal Division of Attain, LLC ("Attain") and Connect Assist Holdings Limited ("Connect Assist"). At the start of fiscal year 2022, we acquired the student loan servicing business from Navient, rebranded as Aidvantage. From the date of each acquisition, we have received the benefit of additional revenue, as well as additional operating costs. In completing these acquisitions, we have allocated a portion of each purchase price to identifiable intangible assets, which we are amortizing over the estimated useful lives of each asset.
•To fund the acquisition of VES, we entered into a new credit facility comprised of fixed term debt and a new revolving credit facility. The cost of servicing this debt, as well as the cost of the debt facilities, has resulted in an increase in our interest expense.
•Our services in fiscal years 2022 and 2021 were affected by the following factors:

COVID-19 pandemic. We have received the benefit from new, short-term work, assisting governments with their responses to the pandemic. This has mitigated the effect of declines in established programs where our transaction volume has been reduced. We anticipate that our core programs will begin returning to capacity in the latter half of this year, as our COVID related work is expected to decline.
•We experienced organic revenue growth across all segments. Much of this work is principally driven from new services we performed to assist governmentsAs anticipated, the Census Questionnaire Assistance ("CQA") contract ended in the U.S. in their COVID-response efforts and increased seasonal volumes in employment services and job seeker support in Australia. The COVID-response work in the U.S.contributed approximately $160 millionfirst quarter of revenue. We anticipate that COVID-response related revenue will be between $425 million and $475 million for the full fiscal year 2021.
•The COVID pandemic continued to have an unfavorable impact on some of our core U.S.-based programs where our customers instituted temporary changes to ensure that individuals and families retained access to vital services. This resulted in reduced volumes, leading to declines in revenue and profits within our core business.
•Our Outside the U.S. Segment experienced growth in the first quarter due to an increased seasonal need and pent-up demand for our role to support more people into employment opportunities, primarily in Australia.
•As the pandemic subsides and restrictions are lifted, we anticipate that many of our programs which have suffered reduced volumes will return to their historical levels while our short-term COVID-response work will decline. The timing of both the upside and downside of this remains uncertain. Our assumptions are subject to changes as we understand more about the duration of the pandemic and related regulations, the recovery pattern of our core programs, the effects of budget challenges, and other changes in policies or legislation.

Results of Operations
Consolidated
The following table sets forth, for the periods indicated, selected statements of operations data:
Table MD&A 1: Consolidated Results of OperationsTable MD&A 1: Consolidated Results of Operations
For the Three Months Ended
Three Months Ended December 31,December 31, 2021December 31, 2020
(dollars in thousands, except per share data)20202019
(dollars in thousands, except per share data)
RevenueRevenue$945,554 $818,229 Revenue$1,150,876 $945,554 
Cost of revenueCost of revenue739,499 642,779 Cost of revenue922,721 739,499 
Gross profitGross profit206,055 175,450 Gross profit228,155 206,055 
Gross profit percentageGross profit percentage21.8 %21.4 %Gross profit percentage19.8 %21.8 %
Selling, general and administrative expenses111,967 87,227 
Selling, general and administrative expense as a percentage of revenue11.8 %10.7 %
Selling, general, and administrative expensesSelling, general, and administrative expenses124,221 111,967 
Selling, general, and administrative expenses as a percentage of revenueSelling, general, and administrative expenses as a percentage of revenue10.8 %11.8 %
Amortization of intangible assetsAmortization of intangible assets6,516 9,088 Amortization of intangible assets22,405 6,516 
Operating incomeOperating income87,572 79,135 Operating income81,529 87,572 
Operating income percentage9.3 %9.7 %
Operating income marginOperating income margin7.1 %9.3 %
Interest expenseInterest expense206 484 Interest expense(9,638)(206)
Other (expense)/income, net(775)719 
Other expense, netOther expense, net(311)(775)
Income before income taxesIncome before income taxes86,591 79,370 Income before income taxes71,580 86,591 
Provision for income taxesProvision for income taxes22,514 20,636 Provision for income taxes18,250 22,514 
Effective income tax rate26.0 %26.0 %
Effective tax rateEffective tax rate25.5 %26.0 %
Net incomeNet income$64,077 $58,734 Net income$53,330 $64,077 
Basic earnings per share$1.03 $0.91 
Diluted earnings per share$1.03 $0.91 
Earnings per share:Earnings per share:
BasicBasic$0.86 $1.03 
DilutedDiluted$0.85 $1.03 

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Our business segments have different factors driving revenue fluctuations and profitability. The sections that follow cover these segments in greater detail.
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Changes in Our revenue costreflects fees earned for services provided. Cost of revenue and gross profit for the three months ended December 31, 2020, are summarized below.
RevenueCost of RevenueGross Profit
Dollars in thousandsPercentage changeDollars in thousandsPercentage changeDollars in thousandsPercentage change
Three months ended December 31, 2019$818,229 $642,779 $175,450 
Effect of Census Questionnaire Assistance 2020 (CQA) contract(9,633)(1.2)%(12,736)(2.0)%3,103 1.8 %
Organic effect128,754 15.7 %102,633 16.0 %26,121 14.9 %
Net acquired growth/(decline)2,352 0.3 %2,439 0.4 %(87)— %
Currency effect compared to the prior period5,852 0.7 %4,384 0.7 %1,468 0.8 %
Three months ended December 31, 2020$945,554 15.6 %$739,499 15.0 %$206,055 17.4 %

Our costconsists of revenue includes direct costs related to labor and related overhead, subcontractor labor, outside vendors, rent, and other direct costs. The largest component of cost of revenue, approximately two-thirds, is labor, including subcontracted labor.
Table MD&A 2: Changes in Revenue, Cost of Revenue, and Gross Profit for the Three Months Ended December 31, 2021
RevenueCost of RevenueGross Profit
Dollars% ChangeDollars% ChangeDollars% Change
(dollars in thousands)
Three Months Ended December 31, 2020$945,554 $739,499 $206,055 
Organic effect(32,764)(3.5) %10,844 1.5  %(43,608)(21.2) %
Acquired growth235,766 24.9  %170,187 23.0  %65,579 31.8  %
Currency effect compared to the prior period2,320 0.2  %2,191 0.3  %129 0.1  %
Three Months Ended December 31, 2021$1,150,876 21.7  %$922,721 24.8  %$228,155 10.7  %
Selling, general, and administrative expense (SG&A)expenses ("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 and rational basis. Fluctuations in our SG&A are primarily 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 StatesU.S. Federal Government and many states, we allocate these costs using a methodology driven by the U.S. Federal Cost Accounting Standards.
Our SG&A expense has increased year-over-year due primarily to:to the additional cost base from our acquisitions.
Our amortization of intangible assets increased by $15.9 million from three months ended December 31, 2020 to three months ended December 31, 2021.
•approximately $5.4 million of severance expenses inThe intangible assets associated with the United States, which is expected to provide a benefit for the remainder of the fiscal year;VES acquisition increased our amortization expense by $13.8 million.
•information technology initiatives, including migration of data toThe intangible assets associated with the cloud;Attain acquisition increased our amortization expense by $2.6 million.
•additional costs to addressThe intangible assets associated with the COVID pandemic;Aidvantage acquisition increased our amortization expense by $1.7 million.
•increasesOur acquisition of the Citizen Engagement Centers business in business development activity to both bolsterfiscal year 2019 included an intangible asset with a value of $37.0 million and an asset life concurrent with the CQA contract. This asset was fully amortized in November 2020, and this reduced our technical skills and plan for increased bidding activity; andyear-over-year charge by $2.3 million.
•increases in our scopeThe balance of operations, which increases our administrative base.

Other expense/income, net included expenses incurredthe difference was derived from the Connect Assist acquisition and the effects of foreign currency fluctuationstranslation.
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Table MD&A 3: Non-GAAP Adjusted Results Excluding Amortization of Intangible Assets
For the Three Months Ended
December 31, 2021December 31, 2020
(dollars in thousands, except per share data)
Operating income$81,529 $87,572 
Add back: Amortization of intangible assets22,405 6,516 
Adjusted operating income excluding amortization of intangible assets (Non-GAAP)$103,934 $94,088 
Adjusted operating income margin excluding amortization of intangible assets (Non-GAAP)9.0 %10.0 %
Net income$53,330 $64,077 
Add back: Amortization of intangible assets, net of tax16,530 4,822 
Adjusted net income excluding amortization of intangible assets (Non-GAAP)$69,860 $68,899 
Diluted earnings per share$0.85 $1.03 
Add back: Effect of amortization of intangible assets on diluted earnings per share0.27 0.08 
Adjusted diluted earnings per share excluding amortization of intangible assets (Non-GAAP)$1.12 $1.11 
Our intangible asset amortization is based upon our assumptions of the value and economic life, typically established at the acquisition date. If these assumptions change, the pattern of future expense may be accelerated. At this time, we have a significant asset related to a large contract relationship on intercompany loans.a contract which is subject to a rebid in June 2022. If this rebid is unsuccessful, the asset life of this asset may need to be reduced.
Our interest expense increased from $0.2 million for the three months ended December 31, 2020 to $9.6 million for the same period in 2021. This increase is driven by the costs of our cash borrowings utilized to acquire VES. Interest expense is expected to be in the range of $33 million to $35 million for fiscal year 2022 due to the debt being outstanding for the entire fiscal year. Our interest rate will vary based upon both prevailing interest rates and our leverage ratio. Additional details on our borrowings are including within the "Liquidity and Capital Resources" section.
Our effective income tax rate for the three months ended December 31, 2021 and 2020, was 25.5% and 2019, was 26.0% for both periods. Our expectations for, respectively. For fiscal year 2022, we expect the effective income tax rate for the full fiscal year 2021 isto be between 25.75%25% and 26.5%26%.
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U.S. Services Segment
Our U.S. Services Segment provides a variety of business process services ("BPS") 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 the Affordable Care Act (ACA)("ACA"), Medicaid, the Children’sChildren's Health Insurance Program (CHIP)("CHIP"), Temporary Assistance to Needy Families (TANF)("TANF"), and child support programs. TheAddressing societal macro trends such as aging populations and rising costs, the segment continues to execute on its clinical evolution strategy by expanding its clinical offerings in public health with new work in contact tracing, disease investigation, and vaccine distribution support services as part of the government's COVID-responsegovernments' COVID-19 response efforts. WeThe segment also successfully expanded into the unemployment insurance market, as Maximus supportedsupporting more than 15 states in their unemployment insurance programs.
 Three Months Ended December 31,
(dollars in thousands)20202019
Revenue$384,934 $312,281 
Cost of revenue285,932 222,691 
Gross profit99,002 89,590 
Operating income61,546 58,192 
Gross profit percentage25.7 %28.7 %
Operating income percentage16.0 %18.6 %

Table MD&A 4: U.S. Services Segment - Financial Results
For the Three Months Ended
December 31, 2021December 31, 2020
(dollars in thousands)
Revenue$386,417 $384,934 
Cost of revenue296,718 285,932 
Gross profit89,699 99,002 
Selling, general, and administrative expenses35,102 37,456 
Operating income54,597 61,546 
Gross profit percentage23.2  %25.7  %
Operating margin percentage14.1  %16.0  %
Our revenue and cost of revenue for the three month periodmonths ended December 31, 2020,2021, increased 23%0.4% and 28%3.8%, respectively, compared to the same period in fiscal year 2020.2021. All growth was organic.
A number of positive and negative factors impacted this segment during the three months ended December 31, 2020.
•We received approximately $114 million of short term revenue from assisting our customers with COVID related administration.
•We continue to be impacted by temporary program changes that were implemented at the direction of our customers which has resulted in lower volumes on someMany of our core performance-based programs which results incontinue to run at reduced capacity as a response to the COVID-19 pandemic. Among other factors, we are reporting lower revenues and profit. In particular, manyvolumes of transactions on redetermination activities as states have paused Medicaid redeterminations as a condition for receiving enhanced U.S. Federal matching funds which ensures continued access to vital healthcare services.funds. In manycertain cases, redeterminations provide a significant part of our activity within volume-based contracts. We are anticipating that redeterminations will commence in the latter half of this fiscal year but the timing and the nature of the change is uncertain.
We anticipate operating income margins for the fullIn fiscal year 2021, will be between 16.5% and 17.5%. Our customerswe received a large volume of short term COVID-19 related work, typically at a higher margin. This work has declined in this segment are typically U.S. state governments, who have seen increases in the demand for the vital social services that we administer while also experiencing a significant reduction in their tax revenues. Although this may provide additional opportunities for us, we face the risk that many of our customers may face cash shortfalls from reduced income tax receipts, resulting in potential budgetary pressures and delayed payments.2022, tempering those margins.
U.S. Federal Services Segment
OurFrom technology solutions to program administration and operations, our U.S. Federal Services Segment provides program administration,delivers end-to-end solutions that help various U.S. Federal Government Agencies better deliver on their mission. This also includes appeals and assessments services, and technology solutions, including system and softwareapplication development, IT modernization, and maintenance services, for various U.S. federal civilian programs.services. The segment also contains certain state-based assessments and appeals work that is part of the segment's heritage within the Medicare Appeals portfolio andwhich continues to be managed within this segment. Recently,Benefiting from the Maximus Federal Consulting (formerly Attain Federal) platform, the segment expandedexecutes on its digital strategy to deliver technology solutions that advance agency missions, including the challenge to modernize, provide better customer experience, and drive process efficiencies. The segment continues to expand its clinical solutions with the acquisition of VES which manages the clinical evaluation process for U.S. veterans and service members on behalf of the U.S. Department of Veterans Affairs. The segment further supports clinical offerings in public health with new work supporting the U.S. Federal Government's COVID-responseCOVID-19 response efforts. This included expanded work with the Centers for Disease Control and Prevention (CDC)("CDC") for their helpline an outbound customer support center for the Office of the Assistant Secretary for Health to notify individuals throughout the U.S. of their COVID test result and increased support for the IRS Wage and Investment Division's response efforts to general inquiries regarding the Coronavirus Aid Relief & Economic Security (CARES)("CARES") Act and Economic Impact Payment Service Plan.
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Table MD&A 5: U.S. Federal Services Segment - Financial ResultsTable MD&A 5: U.S. Federal Services Segment - Financial Results
For the Three Months Ended
Three Months Ended December 31,December 31, 2021December 31, 2020
(dollars in thousands)20202019
(dollars in thousands)
RevenueRevenue$405,245 $366,571 Revenue$581,871 $405,245 
Cost of revenueCost of revenue322,749 295,750 Cost of revenue455,295 322,749 
Gross profitGross profit82,496 70,821 Gross profit126,576 82,496 
Selling, general, and administrative expensesSelling, general, and administrative expenses64,925 52,252 
Operating incomeOperating income30,244 31,582 Operating income61,651 30,244 
Gross profit percentageGross profit percentage20.4 %19.3 %Gross profit percentage21.8  %20.4  %
Operating income percentage7.5 %8.6 %
Operating margin percentageOperating margin percentage10.6  %7.5  %
Table MD&A 6: U.S. Federal Services Segment - Changes in Revenue, Cost of Revenue, and Gross Profit
RevenueCost of RevenueGross Profit
Amount% ChangeAmount% ChangeAmount% Change
(dollars in thousands)
Three Months Ended December 31, 2020$405,245 $322,749 $82,496 
Organic effect(53,339)(13.2) %(34,064)(10.6) %(19,275)(23.4) %
Acquired growth229,965 56.7  %166,610 51.6  %63,355 76.8  %
Three Months Ended December 31, 2021$581,871 43.6  %$455,295 41.1  %$126,576 53.4  %
We received significant acquired growth from:

•VES, which we acquired in May 2021,
Changes•Attain, which we acquired in revenue, cost of revenue,March 2021, and gross profit for the three months ended December 31, 2020, are summarized below.
RevenueCost of RevenueGross Profit
Dollars in thousandsPercentage changeDollars in thousandsPercentage changeDollars in thousandsPercentage change
Three months ended December 31, 2019$366,571 $295,750 $70,821 
Effect of CQA contract(9,633)(2.6)%(12,736)(4.3)%3,103 4.4 %
Organic growth from other contracts49,415 13.5 %40,560 13.7 %8,855 12.5 %
Disposal of business(1,108)(0.3)%(825)(0.3)%(283)(0.4)%
Three months ended December 31, 2020$405,245 10.6 %$322,749 9.1 %$82,496 16.5 %

Our revenue and cost of revenue for the three month period ended December 31, 2020, increased 11% and 9.1%, respectively, compared to the same period in fiscal year 2020.
•The CQAAidvantage business, which we acquired in October 2021.
Our profit margins on VES and Attain are higher than our organic work, resulting in improvements to our profit margins. Our organic work tempered our margins. This was driven by a large contract provided approximately $60 million of revenue duringwe agreed to accept a lower margin in return for increased funding and future revenue.
In the first quarter of fiscal year 2021. The2021, we completed our work on the U.S. Census Questionnaire (CQA) contract, was ramping up operationswhich did not recur in the first quarter of fiscal year 2020; operations are winding down in the first quarter of fiscal year 2021.
•We estimated that our incremental revenue from assisting the U.S. Federal Government with its COVID-response was $46 million.
•Our business realized higher revenues from short-term work but also experienced lower margins due to reduced volumes on performance-based contracts, such as independent medial reviews for worker's compensation programs that declined sharply since the onset of the pandemic.
•Operating margin also declined due to increased spending on business development and selling activities.
•In fiscal year 2020, we disposed of a small business to eliminate a perceived conflict of interest.
We anticipate operating income margins for the full fiscal year 2021 will be between 6% and 7% as the CQA contract ramps down.
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2022.
Outside the United StatesU.S. Segment
Our Outside the U.S. Segment provides business process services (BPS) solutionsBPS for international governments and commercial clients. Theseclients, transforming the lives of people around the world. Helping people find employment, access vital support, and remain healthy, these services include health and disability assessments, program administration for employment services, wellbeing solutions, and other job seeker-relatedseeker related services. We support programs and deliver services in the United Kingdom (U.K.)U.K., including the Health Assessment Advisory Service (HAAS)("HAAS"), the Work & Health Programme, Fair Start, and Fair Start;Restart; Australia, including jobactive and the Disability Employment Service; Canada, including Health Insurance British Columbia and the Employment Program of British Columbia; in addition to Italy, Saudi Arabia, Singapore, South Korea, and Sweden, where we predominantly provide employment support and job seeker services.
 Three Months Ended December 31,
(dollars in thousands)20202019
Revenue$155,375 $139,377 
Cost of revenue130,818 124,338 
Gross profit24,557 15,039 
Operating income/(loss)4,525 (1,014)
Gross profit percentage15.8 %10.8 %
Operating income/(loss) percentage2.9 %(0.7)%
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Table MD&A 7: Outside the U.S. Segment - Financial Results
For the Three Months Ended
December 31, 2021December 31, 2020
(dollars in thousands)
Revenue$182,588 $155,375 
Cost of revenue170,708 130,818 
Gross profit11,880 24,557 
Selling, general, and administrative expenses21,340 20,032 
Operating (loss)/income(9,460)4,525 
Gross profit percentage6.5  %15.8  %
Operating margin percentage(5.2) %2.9  %
Changes in revenue, cost of revenue, and gross profit for the three months ended December 31, 2020, are summarized below.
RevenueCost of RevenueGross Profit
Dollars in thousandsPercentage changeDollars in thousandsPercentage changeDollars in thousandsPercentage change
Three months ended December 31, 2019$139,377 $124,338 $15,039 
Organic growth/(decline)6,686 4.8 %(1,168)(0.9)%7,854 52.2 %
Acquired growth3,460 2.5 %3,264 2.6 %196 1.3 %
Currency effect compared to the prior period5,852 4.2 %4,384 3.5 %1,468 9.8 %
Three months ended December 31, 2020$155,375 11.5 %130,818 5.2 %24,557 63.3 %


Table MD&A 8: Outside the U.S. Segment - Changes in Revenue, Cost of Revenue, and Gross Profit
RevenueCost of RevenueGross Profit
Amount% ChangeAmount% ChangeAmount% Change
(dollars in thousands)
Three Months Ended December 31, 2020$155,375 $130,818 $24,557 
Organic effect19,092 12.3  %34,122 26.1  %(15,030)(61.2) %
Acquired growth5,801 3.7  %3,577 2.7  %2,224 9.1  %
Currency effect compared to the prior period2,320 1.5 %2,191 1.7 %129 0.5 %
Three Months Ended December 31, 2021$182,588 17.5  %$170,708 30.5  %$11,880 (51.6) %
This segment has seenexperienced organic growth in revenue and profit,costs, as well as acquired growth and currency benefits during fiscal yearthe three months ended December 31, 2021.
Much of our revenueRevenue growth stemswas principally from our employment services contracts,United Kingdom business, where we earn revenue based upon our abilitythe Restart contract continued to place individuals in long-term sustained employment. Revenue is recognized basedramp up. Margins on our estimate of the number of individuals whom we anticipate reaching these milestones. As a result, changes in our estimates of our ability to place people in work and the time that this will take can have significant effects on our revenue. As the effects of the COVID pandemic became clear during the second quarter of fiscal year 2020, our revenue was significantlyRestart contract are tempered as unemployment rose and available employment opportunities declined. As the pandemic and related restrictions decline, we would anticipate seeing strong demand forhave not yet reached our employment services.
Infull service capacity. Elsewhere, our margins have contracted as caseload has declined; in the first quarter of fiscal year 2021, our margins were higher as we experienced an increase in revenue and profit in Australia driven by a temporary, spike in demand for qualified job seekers in retail and travel related industries duringreceived the holiday season. The prior-year period was tempered bybenefit from the bush firesrecovery of our employment contracts in Australia.
OurAcquired growth is from the Connect Assist acquisition.
Much of our revenue, including that on the Restart contract, stems from our employment services contracts. On many contracts, we recognize revenue based upon estimates of the number offuture employment outcomes, we anticipatewhich have become more volatile due to achieve and the time we expect to achieve those outcomes impact the revenue recognized in the current period. These estimates are based upon our current expectations as to how the effects of the COVID-19 pandemic, including regulationsthose actions adopted by governments and employment practices adopted by employers, will progress.employers. We have typically basedupdate our estimates on historical performance. The effects of COVID have limited the extent to which we can relyregularly based upon historicalactual performance and accordingly,updated expectations, but a sudden change in employment markets may result in significant fluctuations in our revenue may be more volatile than we have previously experienced.revenue.
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Our acquired growth is from the acquisition of InjuryNet in Australia in February 2020 and Index Root in South Korea in August 2020.
The weakening of the United States Dollar against the currencies in which we do business outside the U.S. has resulted in year-over-year growth in our revenue and costs.

As pandemic restrictions ease and economies emerge from the pandemic-related lockdowns, we anticipate robust markets for our employment services and a return to pre-pandemic levels for our health assessments services. We have also identified new work opportunities which, as is typical in this business, are likely to generate up-front losses as the programs ramp up. We anticipate operating margins for this segment to be in a loss position in the second quarter of fiscal year 2021, with steady improvements through the remainder of the fiscal year. We expect that the segment will be approximately breakeven for the full fiscal year 2021.

Liquidity and Capital Resources
Our principal sourceprimary sources of liquidity remains ourare cash on hand, cash flows from operations.operating activities, and availability under our revolving credit facilities. As of December 31, 2021, we had $181.8 million in cash and cash equivalents. We continuebelieve that our current cash position, access to experience some delays inour revolvers, and cash flow generated from operations should be not only sufficient for our operating requirements but also to enable us to fund share repurchases and any required long-term debt payments from our customers in additionthrough the next several fiscal years. See Note 7 to the operational challenges we are facingConsolidated Financial Statements for a more detailed discussion of our debt financing arrangements.
Table MD&A 10: Net Change in Cash and Cash Equivalents and Restricted Cash
For the Three Months Ended
December 31, 2021December 31, 2020
(in thousands)
Operating activities:
Net income$53,330 $64,077 
Non-cash adjustments42,438 25,693 
Changes in working capital(98,687)8,345 
Net cash (used in)/provided by operating activities(2,919)98,115 
Net cash used in investing activities(6,327)(9,253)
Net cash provided by/(used in) financing activities54,916 (31,487)
Effect of foreign exchange rates on cash and cash equivalents and restricted cash372 3,882 
Net change in cash and cash equivalents and restricted cash$46,042 $61,257 
Net Cash (Used In)/Provided By Operating Activities
Net cash provided by operating activities decreased by $101.0 million for the three months ended December 31, 2021 compared to three months ended December 31, 2020. This decrease was primarily driven from a decrease in net income, increased working capital requirements, the timing of cash payments, including payments previously deferred in the United States under the CARES Act, and increased interest payments on our contracts. We continueborrowings. Our Days Sales Outstanding ("DSO") as of both December 31, 2021 and September 30, 2021, were 67 days.
Net Cash Used In Investing Activities
The net cash used in investing activities were $6.3 million and $9.3 million for the three months ended December 31, 2021 and 2020, respectively. These cash outflows were primarily for capital expenditures to generatesupport our operations.
Net Cash Provided By/(Used In) Financing Activities
The $54.9 million cash flowsprovided by financing activities during the three months ended December 31, 2021, is primarily the result of a $100.0 million draw on our revolving credit line to fund operations, capital expenditures,partially offset by $16.7 million of required debt payments on our term loans. Additionally, offsetting the cash flows related to debt, the Company also made $17.3 million in dividend payments, $9.7 million in tax payments for stock compensation, and our dividend program. At$1.4 million for share repurchases. During the three months ended December 31, 2020, we had approximately $132.6 million in unrestricted cash and $400$31.5 million of liquidity available on our corporate credit facilitycash used by financing activities, primarily being driven by dividend payments of $17.2 million, tax payments made related to stock compensation, and capacity on smaller credit facilities worldwide.shares repurchases of $3.4 million.

With the acquisition of Aidvantage, we have incurred a liability to the seller based upon future performance, which we have estimated at $15.3 million. We expect these payments to be made through fiscal year 2024.
Cash in Foreign Locations
We have no requirement to remit funds from our foreign locations to the United States. The Tax Cuts and Jobs Act in the United States enabled us and continues to enable us to transfer cash from our foreign locations on a tax-free basis. We will continue to explore opportunities to remit additional funds, taking into consideration the working capital requirements and relevant tax rules in each jurisdiction. When 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 that 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.
Cash Flows
The following table provides a summary of our cash flow information for the three months ended December 31, 2020 and 2019.
 Three Months Ended December 31,
(in thousands)20202019
Net cash from/(used in):  
Operations$98,115 $87,267 
Investing activities(9,253)(10,462)
Financing activities(31,487)(33,800)
Effect of exchange rate changes on cash and cash equivalents3,882 1,452 
Net increase in cash, cash equivalents, and restricted cash$61,257 $44,457 

Our cash flows from operations increased compared to fiscal year 2020 due to the increase in our operating income and the timing of our cash collections. As we anticipated, our DSO improved from September 30, 2020, but is still being impacted, as compared to December 31, 2019, due to U.S. state governments delaying payments to assist their cash flows.
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(in days)Days Sales Outstanding
September 30, 201972
December 31, 201971
September 30, 202077
December 31, 202075
Target Range65 - 80
Free Cash Flow (Non-GAAP)

Table MD&A 11: Free Cash Flow (Non-GAAP)
For the Three Months Ended
December 31, 2021December 31, 2020
(in thousands)
Net cash (used in)/provided by operating activities$(2,919)$98,115 
Purchases of property and equipment and capitalized software(6,327)(9,094)
Free cash flow (Non-GAAP)$(9,246)$89,021 
Cash used in investing activities for the three months ended December 31, 2020, was $9.3 million, principally for capital expenditures to support operations.
Cash used in financing activities in the three months ended December 31, 2020, was $31.5 million, compared to $33.8 million of cash used in the comparative period. Financing activities in both periods remained consistent consisting primarily of our cash dividends and tax withholdings on restricted stock units vesting.
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,
(in thousands)20202019
Cash flows from operations$98,115 $87,267 
Purchases of property and equipment and capitalized software costs(9,094)(10,487)
Free cash flow - non-GAAP$89,021 $76,780 


Critical Accounting Policies and Estimates
AsThe preparation of December 31, 2020, there have been no changes to our critical accounting policies and estimates from those disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020.
Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements which have been prepared in accordanceconformity with accounting principles generally accepted in the United States. The preparation of these financial statementsU.S. requires us to make estimates, judgments, 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.reported. Actual results could differ from those estimates.

 The 2021 Form 10-K, as filed with the SEC on November 18, 2021, includes a summary of critical accounting policies we believe are the most important to aid in understanding our financial results. There have been no changes to those critical accounting policies that have had a material impact on our reported amounts of assets, liabilities, revenues, or expenses during the three months ended December 31, 2021.
Non-GAAP and Other Measures
We utilize non-GAAP measures where we believe it will assist the userusers 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,operating activities, net income, or net incomeearnings per share 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 2020, 14%2021, 16% 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’syear'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."
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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 or disposed of. We will identify acquired revenue and cost of revenue by showing these results for periods for which no comparative results exist within our financial statements. We will identify revenue and cost of revenue that has been disposed of in a similar manner. This information is supplemented by our calculations of organic growth. To calculate organic growth, we compare current fiscal year results excluding transactions from acquisitions or disposals to our prior fiscal year results.
Our resultsrecent acquisitions have resulted in fiscal year 2020 included a significant benefit from the CQA contract as the U.S. Federal Government completed its census. As the pattern of revenue from this contract is significant and non-recurring, we have identified the revenue and related costs and excluded them from the organic growth calculation above.intangible assets which are amortized over their estimated useful lives. We believe that it is helpful tousers of our investorsfinancial statements wish to understand the performance of the business by using a methodology that allows them to compare operating activities excluding the effects of the amortization of intangible assets. Accordingly, we have calculated our operating profit, net income, and earnings per share excluding the effect of this contract onthe amortization of intangible assets. We have included a table showing our results.reconciliation of these income measures to their corresponding GAAP measures.
In order to sustain our cash flows from operations, we require regular refreshing ofregularly refresh 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’sCompany'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 cash flows from operationsoperating activities to free cash flow.flow in "Liquidity and Capital Resources."
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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.
As noted above, we have a $400 million$2.10 billion corporate 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 corporate credit facility requires us to calculate Adjusted EBITDA on a pro forma basis, as though we had owned any significant acquired business for a full twelve months. Accordingly, we have included the effects of VES, Attain, Aidvantage, and Connect Assist in the table below.
We have provided a reconciliation from net income to Non-GAAP Adjusted EBITA, Non-GAAP Adjusted EBITDA, and Non-GAAP Pro Forma Adjusted EBITDA as follows:shown below. Our current credit facilities utilized a different version of EBITDA from that of the credit facility used in prior years.
 Three Months Ended
December 31,		Trailing Twelve Months Ended
December 31,
(in thousands)2020201920202019
Net income$64,077 $58,734 $219,852 $243,645 
Interest expense/(income), net162 (118)1,580 650 
Provision of income taxes22,514 20,636 74,431 77,628 
Amortization of intangible assets6,516 9,088 33,062 36,684 
Stock compensation expense6,062 5,397 24,373 21,200 
Acquisition-related expenses1,873 — 6,494 1 
Gain on sale of a business— — (1,718)— 
Adjusted EBITA - non-GAAP$101,204 $93,737 $358,074 $379,808 
Depreciation and amortization of property, plant, equipment and capitalized software11,817 15,318 61,026 56,491 
Adjusted EBITDA - non-GAAP$113,021 $109,055 $419,100 $436,299 

Table MD&A 12: Reconciliation of Net Income to Non-GAAP Adjusted EBITA, Non-GAAP Adjusted EBITDA, and Non-GAAP Pro Forma Adjusted EBITDA
For the Three
Months Ended		For the Trailing Twelve
Months Ended
December 31, 2021December 31, 2021
(in thousands)
Net income$53,330 $280,453 
Adjustments:
Interest expense9,638 24,176 
Other expense, net311 9,641 
Provision for income taxes18,250 88,216 
Amortization of intangibles22,405 60,247 
Stock compensation expense8,248 30,741 
Acquisition-related expenses2,490 12,661 
Adjusted EBITA - Non-GAAP measure114,672 506,135 
Depreciation and amortization of property, equipment, and capitalized software11,365 45,909 
Adjusted EBITDA - Non-GAAP measure$126,037 $552,044 
Pro forma adjusted EBITDA related to acquisitions - Non-GAAP measure75,031 
Pro forma adjusted EBITDA - Non-GAAP measure$627,075 
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Item 3.Quantitative and Qualitative Disclosures aboutAbout Market Risk.Risk
Our exposureIn the normal course of business, we are exposed to marketfinancial risks generally relates tosuch as changes in interest rates, foreign currency exchange rates.
Atrates, and counterparty risk. We use derivative instruments to manage selected interest rate exposures. The Company's market rate risk disclosures set forth in Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk" on the 2021 Form 10-K, as filed with the SEC on November 18, 2021, have not changed materially during the three month period ended December 31, 2020, and September 30, 2020, we held net assets denominated in currencies other than the U.S. Dollar of $162.3 million and $164.6 million, respectively. Of these balances, cash and cash equivalents comprised $78.2 million and $45.0 million, respectively. Included within our net assets held in international currency are assets that 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, operating lease right-of-use assets, accounts payable, accrued compensation, deferred revenue, lease liabilities, and debt. At December 31, 2020, the net value of these assets and liabilities was $54.0 million.
In the event of a 10% unfavorable exchange rate movement across currencies, we would have reported the following incremental effects on our comprehensive income and our cash flow statement.
(in thousands)December 31, 2020September 30, 2020
Comprehensive income attributable to Maximus$(16,230)$(16,460)
Net decrease in cash and cash equivalents(7,823)(4,500)

Where possible, we identify surplus funds in foreign locations and place them in entities with the U.S. Dollar as their functional currency, reducing our exposure to foreign currencies. We mitigate much of our foreign currency exchange risks by incurring costs and cash outflows in the same currency as our revenue.
We are exposed to interest rate risk through our revolving corporate credit facility and other borrowings. Our interest rate for the revolving corporate credit facility 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 31, 2020, was 0.14%. We had no borrowings under the corporate credit facility at December 31, 2020. The outstanding debt at December 31, 2020, of $32.6 million, was comprised of borrowings in foreign locations. The terms and rates under which we borrow in these jurisdictions varies from location to location. As these borrowings are relatively small and for brief periods, we do not anticipate significant interest rate exposure.

2021.
Item 4.Controls and Procedures.Procedures
(a)Management's Evaluation of Disclosure Controls and ProceduresProcedures.
Our The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in its periodic filings under the Securities Exchange Act of 1934 ("Exchange Act"), including this Quarterly Report on Form 10-Q, is recorded, processed, summarized, and reported on a timely basis. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed under the Exchange Act is accumulated and communicated to the Company's management withon a timely basis to allow decisions about required disclosure. Management, including the participation of our principal executive officerCompany's Chief Executive Officer and principal financial officer,Chief Financial Officer, has evaluated the effectiveness of the design and operation of ourMaximus' disclosure controls and procedures (as defined inunder Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of December 31, 2021.
Maximus carried out the evaluation of the effectiveness of its disclosure controls and procedures, required by paragraph (b) of Exchange Act Rules 13a-15 and 15d-15, under the Securities Exchange Actsupervision and with the participation of 1934, as amended (the “Exchange Act”)) as ofmanagement, including the end of the period covered by this Quarterly Report on Form 10-Q.Chief Executive Officer and Chief Financial Officer. Based onupon this evaluation, our principal executive officerthe Chief Executive Officer and principal financial officerChief Financial Officer concluded that thesethe Company's 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.of December 31, 2021.
(b)Changes in Internal Control overOver Financial ReportingReporting.
There waswere no changechanges in ourthe Company's internal control over financial reporting (as defined in RulesRule 13a-15(f) and 15d-15(f) underof the Exchange Act) identified in connection withduring the evaluation of our internal controlthree months ended December 31, 2021, that occurred during our last fiscal quarter that hashave materially affected, or isare reasonably likely to materially affect, ourthe Company's internal control over financial reporting.
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PART II.II - OTHER INFORMATION
Item 1.Legal Proceedings.Proceedings
Refer to our disclosures included in "Note 8. Litigation"14. Commitments and Contingencies included in Part 1, Item 1 of this Quarterly Report on Form 10-Q.

Item 1A.Risk Factors.Factors
In connection with information set forthThere were no material changes during the three months ended December 31, 2021 to the risk factors previously disclosed in this Form 10-Q, the factors discussed under “Risk Factors” in our2021 Form 10-K, for fiscal year ended September 30, 2020, should be considered. The risks included in those filings could materially and adversely affect our business, financial condition, and results of operations.

as filed with the SEC on November 18, 2021.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.Proceeds
(a)None.
(c) The following table sets forth the information required regarding purchases of common stock that we made during the three months ended December 31, 2020.
PeriodTotal Number of Shares PurchasedAverage 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)
October 1, 2020 — October 31, 202051,735 $64.98 51,735 $146,665 
November 1, 2020 — November 30, 2020— — — 146,665 
December 1, 2020 — December 31, 2020— — — 146,665 
Total51,735 — 51,735  
(b)None.

(1)(c)Under a resolution adopted in March 2020, the Board of Directors authorized the purchase, at management's discretion, of up to an aggregate of $200$200.0 million of our common stock. TheThis supplemented a similar resolution also authorized the use of option exercise proceeds for the purchase of our common stock.adopted in June 2018.
Common Stock Repurchase Activity During the Three Months Ended December 31, 2021
PeriodTotal Number of Shares PurchasedAverage Price Paid Per ShareTotal Number of Shares Purchased as Part of the Publicly Announced Plans or ProgramsMaximum Dollar Value that May Yet Be Purchased Under the Plans or Programs
(dollars in thousands, except per share data)
October 1 - October 31, 2021— $— — $146,665 
November 1 - November 30, 2021— — — $146,665 
December 1 - December 31, 202118,403 74.87 18,403 $145,286 
Total18,403 $74.87 18,403 
Item 3. Defaults Upon Senior Securities
(a)None.
(b)None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
(a)None.
(b)None.
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Item 6.Exhibits. Exhibits
Exhibit
No.		Description of Exhibit
31.1
v
31.131.2
sv
32.1
Φ
31.2101.INSsv
32.1101.SCHv
Section 906 Principal Executive Officer Certification.XBRL Taxonomy Extension Schema Document.
32.2101.CALv
Section 906 Principal Financial Officer Certification.XBRL Taxonomy Calculation Linkbase Document.
101101.DEFvXBRL Taxonomy Definition Linkbase Document.
The following materials from the Maximus, Inc. Quarterly Report on Form 10-Q for the quarter ended December 31, 2020 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 Unaudited Consolidated Financial Statements. Filed electronically herewith.101.LABvXBRL Taxonomy Label Linkbase Document.
101.PREvXBRL Taxonomy Presentation Linkbase Document.
104vCover Page Interactive Data FileFile. (formatted as Inline XBRL tags and contained in Exhibit 101)

s    Filed herewith.
v    Furnished herewith.

Filed herewith.
ΦFurnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrantRegistrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Maximus, Inc.
Date: /s/ Bruce L. CaswellFebruary 4, 20213, 2022
By:/s/ Richard J. NadeauBruce L. Caswell
 President and Chief Executive OfficerRichard J. Nadeau
 (Principal Executive Officer)
/s/ David. W. MutrynFebruary 3, 2022
By:David W. Mutryn
Chief Financial Officer
(On behalf of the registrant and as Principal Financial and Accounting Officer)

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