| Revenue Recognition | Revenue Recognition We recognize revenue as, or when, we satisfy performance obligations under a contract. The majority of our contracts have performance obligations which are satisfied over time. In most cases, we view our performance obligations as promises to transfer a series of distinct services to our customer that are substantially the same and which have the same pattern of service. We recognize revenue over the performance period as a customer receives the benefits of our services. Disaggregation of revenue In addition to our segment reporting, we disaggregate our revenues by service, contract type, customer type and geography. Our operating segments represent the manner in which our Chief Executive Officer reviews our financial results which is further discussed in "Note 2. Segment Information." By operating segment and service Three Months Ended June 30, Nine Months Ended June 30, (dollars in thousands) 2020 2019 2020 2019 Program administration $ 251,616 $ 212,638 $ 724,960 $ 651,343 Assessments and appeals 40,875 35,657 104,621 106,209 Workforce and children services 32,531 29,146 90,651 76,947 Other 11,928 13,691 37,697 41,583 Total U.S. Health and Human Services $ 336,950 $ 291,132 $ 957,929 $ 876,082 Program administration $ 362,973 $ 204,622 $ 949,071 $ 554,739 Technology solutions 42,101 39,994 130,172 116,870 Assessments and appeals 45,069 47,679 130,862 127,409 Total U.S. Federal Services $ 450,143 $ 292,295 $ 1,210,105 $ 799,018 Workforce and children services $ 55,046 $ 65,819 $ 146,968 $ 208,856 Assessments and appeals 42,468 62,152 167,397 192,233 Program administration 15,544 16,767 49,583 48,009 Other 1,186 2,545 5,719 7,651 Total Outside the U.S. $ 114,244 $ 147,283 $ 369,667 $ 456,749 Total revenue $ 901,337 $ 730,710 $ 2,537,701 $ 2,131,849 By contract type Three Months Ended June 30, Nine Months Ended June 30, (dollars in thousands) 2020 2019 2020 2019 Performance-based $ 295,650 $ 260,052 $ 864,077 $ 834,531 Cost-plus 422,641 282,795 1,184,425 756,227 Fixed price 132,535 142,940 352,255 429,962 Time and materials 50,511 44,923 136,944 111,129 Total revenue $ 901,337 $ 730,710 $ 2,537,701 $ 2,131,849 By customer type Three Months Ended June 30, Nine Months Ended June 30, (dollars in thousands) 2020 2019 2020 2019 New York State government agencies $ 79,140 $ 90,295 $ 276,585 $ 271,865 Other U.S. state government agencies 265,608 204,272 692,689 601,044 Total U.S. state government agencies 344,748 294,567 969,274 872,909 United States Federal Government agencies 429,031 276,294 1,155,773 745,195 International government agencies 107,353 136,848 345,629 425,921 Other, including local municipalities and commercial customers 20,205 23,001 67,025 87,824 Total revenue $ 901,337 $ 730,710 $ 2,537,701 $ 2,131,849 By geography Three Months Ended June 30, Nine Months Ended June 30, (dollars in thousands) 2020 2019 2020 2019 United States of America $ 787,092 $ 583,428 $ 2,168,033 $ 1,675,101 United Kingdom 53,364 72,265 190,088 224,017 Australia 38,415 48,744 100,390 153,114 Rest of world 22,466 26,273 79,190 79,617 Total revenue $ 901,337 $ 730,710 $ 2,537,701 $ 2,131,849 Contract balances Differences in timing between revenue recognition and cash collection result in contract assets and contract liabilities. We classify these assets as accounts receivable — billed and billable and unbilled receivables; the liabilities are classified as deferred revenue. In many contracts, we bill our customers on a monthly basis shortly after the month end for work performed in that month. Funds are considered collectible and are included within accounts receivable — billed and billable. Exceptions to this pattern will arise for various reasons, including those listed below. • Under cost-plus contracts, we are typically required to estimate a contract’s share of our general and administrative expenses. This share is based upon estimates of total costs which may vary over time. We typically invoice our customers at an agreed provisional billing rate which may differ from actual rates incurred. If our actual rates are higher than the provisional billing rates, an asset is recorded for this variance; if the provisional billing rates are higher than our actual rates, we record a liability. • Certain contracts include retainage balances, whereby revenue is earned but some portion of cash payments are held back by the customer for a period of time, typically to allow the customer to confirm the objective criteria laid out by the contract have been met. This balance is classified as accounts receivable - unbilled until restrictions on billing have been lifted. • In certain contracts, we may receive funds from our customers prior to performing operations. These funds are typically referred to as “set-up costs” and reflect the need for us to make investments in infrastructure prior to providing a service. This investment in infrastructure is not a performance obligation which is distinct from the service that is subsequently provided and, as a result, revenue is not recognized based upon the establishment of this infrastructure, but rather over the course of the contractual relationship. The funds are initially recorded as deferred revenue and recognized over the term of the contract. Other contracts may not include set-up fees but will provide higher fees in earlier periods of the contract. The premium on these fees is deferred. • Some of our contracts, notably our welfare-to-work and employment services contracts in the Outside the U.S. Segment, include payments for outcomes, such as job retention, which occur over several months. We are required to estimate these outcome fees ahead of their realization and recognize this estimated fee over the period of delivery. Of our revenue for the three and the nine months ended June 30, 2020, approximately $9.1 million and $49.2 million were from cash payments made to us prior to October 1, 2019, respectively. For the three and nine months ended June 30, 2019, we recognized revenue of $3.0 million and $35.0 million from payments made prior to October 1, 2018, respectively. Contract estimates We are required to use estimates in recognizing revenue from some of our contracts. As discussed in "Note 1. Organization and Basis of Presentation," the calculation of these estimates has been complicated by the COVID-19 pandemic, which has reduced our ability to use past results to estimate future performance. Some of our performance-based contract revenue is recognized based upon future outcomes defined in each contract. This is the case in many of our welfare-to-work contracts in the Outside the U.S. Segment, where we are paid as individuals attain employment goals, which may take many months to achieve. We recognize revenue on these contracts over the period of performance. Our estimates vary from contract to contract but may include estimates of the number of participants, the length of the contract and the participants reaching employment milestones. We are required to estimate these outcome fees ahead of their realization and recognize this estimated fee over the period of delivery. In almost all of the jurisdictions in which we operate, the employment markets have experienced significant changes due to the COVID-19 pandemic. For our existing program participants, many employment opportunities have been terminated or are no longer available. Our volume of new program participants is expected to increase but it is unclear as to when these populations will be in a position to seek employment in many industries which have been curtailed by the COVID-19 pandemic. In some cases, we anticipate that we may be unable to place individuals in employment in the short-term. Other performance-based contracts with future outcomes include those where we recognize an average effective rate per participant based upon the total volume of expected participants. In this instance, we are required to estimate the amount of discount applied to determine the average rate of revenue per participant. Our revised estimates of participant numbers are based upon our updated evaluation of probable future volumes. We are required to use estimates in recognizing certain revenue. Where we have changes to our estimates, these are recognized on a cumulative catch-up basis. In the three and nine months ended June 30, 2020, we reported reductions in revenue of $1.4 million and $9.1 million, respectively, from changes in estimates as of September 30, 2019. In the three and nine months ended June 30, 2019, we reported reductions in revenue of $2.3 million and $10.3 million, respectively, from changes in estimates. Deferred contract costs For many contracts, we incur significant incremental costs at the beginning of an arrangement. Typically, these costs relate to the establishment of infrastructure which we utilize to satisfy our performance obligations with the contract. We report these costs as deferred contract costs and amortize them on a straight-line basis over the shorter of the useful economic life of the asset or the anticipated term of the contract. Three Months Ended June 30, Nine Months Ended June 30, (dollars in thousands) 2020 2019 2020 2019 Deferred contract cost capitalization $ 2,268 $ 4,738 $ 6,263 $ 12,950 Deferred contract cost amortization 1,369 1,843 4,866 4,663 This amortization was recorded within our "cost of revenue" on our consolidated statements of operations. Remaining performance obligations At June 30, 2020, we had approximately $325 million of remaining performance obligations. We anticipate that we will recognize revenue on approximately 60% 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. |
