MAXIMUS(MMS) - 2020 Q3 - Quarterly Report

Filing Information Details the company's filing status, stock exchange listing, and outstanding shares - Maximus, Inc. filed its Quarterly Report on Form 10-Q for the period ended June 30, 2020[2] - The company's common stock (MMS) is registered on the New York Stock Exchange[4] - Maximus, Inc. is classified as a large accelerated filer and has complied with all Section 13 or 15(d) filing requirements and submitted all required Interactive Data Files[4] - As of August 3, 2020, there were 61,312,619 shares of common stock outstanding[5] Special Note Regarding Forward-Looking Statements Highlights risks and uncertainties associated with future-oriented statements, disclaiming update obligations - Forward-looking statements are identified by words such as 'anticipate,' 'intend,' 'plan,' 'believe,' 'expect,' and similar references to future periods[10] - Key risks include the continued spread and impact of the COVID-19 virus, demand for services, failure to meet contract performance, legislative changes, ability to bid successfully, technology system maintenance, and personnel retention[11][13] - The company undertakes no obligation to publicly update any forward-looking statements[12] Part I. Financial Information Presents the company's unaudited consolidated financial statements and management's discussion and analysis Item 1. Consolidated Financial Statements Presents unaudited consolidated financial statements including operations, balance sheets, cash flows, and detailed notes Consolidated Statements of Operations Presents the company's revenues, expenses, and net income for the specified periods Consolidated Statements of Operations (Three Months Ended June 30) Consolidated Statements of Operations (Three Months Ended June 30): | Metric | 2020 (Thousands) | 2019 (Thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | $901,337 | $730,710 | 23.35% | | Gross profit | $185,603 | $174,247 | 6.52% | | Operating income | $87,309 | $83,594 | 4.45% | | Net income attributable to Maximus | $64,464 | $62,898 | 2.49% | | Diluted earnings per share | $1.04 | $0.97 | 7.22% | | Dividends paid per share | $0.28 | $0.25 | 12.00% | Consolidated Statements of Operations (Nine Months Ended June 30) Consolidated Statements of Operations (Nine Months Ended June 30): | Metric | 2020 (Thousands) | 2019 (Thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | $2,537,701 | $2,131,849 | 19.04% | | Gross profit | $514,151 | $502,934 | 2.23% | | Operating income | $203,755 | $239,531 | -14.94% | | Net income attributable to Maximus | $150,848 | $180,735 | -16.53% | | Diluted earnings per share | $2.37 | $2.79 | -15.05% | | Dividends paid per share | $0.84 | $0.75 | 12.00% | Consolidated Statements of Comprehensive Income Details net income and other comprehensive income components, including foreign currency adjustments Consolidated Statements of Comprehensive Income (Three Months Ended June 30) Consolidated Statements of Comprehensive Income (Three Months Ended June 30): | Metric | 2020 (Thousands) | 2019 (Thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Net income | $64,464 | $62,965 | 2.38% | | Foreign currency translation adjustments | $3,432 | $(1,974) | -273.96% | | Comprehensive income attributable to Maximus | $67,896 | $60,924 | 11.45% | Consolidated Statements of Comprehensive Income (Nine Months Ended June 30) Consolidated Statements of Comprehensive Income (Nine Months Ended June 30): | Metric | 2020 (Thousands) | 2019 (Thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Net income | $150,848 | $180,454 | -16.41% | | Foreign currency translation adjustments | $(1,304) | $(4,157) | 68.63% | | Comprehensive income attributable to Maximus | $149,544 | $176,578 | -15.31% | Consolidated Balance Sheets Provides a snapshot of assets, liabilities, and equity at specific reporting dates Consolidated Balance Sheets (As of June 30, 2020 vs. September 30, 2019) Consolidated Balance Sheets (As of June 30, 2020 vs. September 30, 2019): | Asset/Liability | June 30, 2020 (Thousands) | September 30, 2019 (Thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Assets: | | | | | Total current assets | $979,512 | $789,425 | 24.08% | | Total assets | $2,062,986 | $1,745,732 | 18.17% | | Liabilities: | | | | | Total current liabilities | $502,544 | $364,238 | 38.00% | | Total liabilities | $868,039 | $497,531 | 74.47% | | Equity: | | | | | Total Maximus shareholders' equity | $1,194,947 | $1,247,792 | -4.23% | - Cash and cash equivalents decreased from $105.6 million at September 30, 2019, to $81.5 million at June 30, 2020[22] - Long-term debt, less current portion, increased substantially from $0.2 million at September 30, 2019, to $145.2 million at June 30, 2020[22] Consolidated Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows (Nine Months Ended June 30) Consolidated Statements of Cash Flows (Nine Months Ended June 30): | Activity | 2020 (Thousands) | 2019 (Thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Cash flows from operations | $96,083 | $263,711 | -63.57% | | Cash used in investing activities | $(27,412) | $(440,706) | 93.78% | | Cash used in financing activities | $(89,001) | $(99,601) | 10.64% | | Net decrease in cash, cash equivalents and restricted cash | $(20,504) | $(277,590) | 92.61% | - The significant decrease in cash flows from operations in 2020 was primarily due to lower net income and a substantial increase in accounts receivable[25][140] - Cash used in investing activities decreased substantially in 2020 due to significantly lower acquisition spending compared to 2019[25] Consolidated Statements of Changes in Shareholders' Equity Details changes in shareholders' equity, including net income, dividends, and stock repurchases Consolidated Statements of Changes in Shareholders' Equity (Nine Months Ended June 30, 2020) Consolidated Statements of Changes in Shareholders' Equity (Nine Months Ended June 30, 2020): | Metric | Balance at Sep 30, 2019 (Thousands) | Net Income (Thousands) | Cash Dividends (Thousands) | Purchases of Common Stock (Thousands) | Balance at Jun 30, 2020 (Thousands) | | :--- | :--- | :--- | :--- | :--- | :--- | | Common Stock | $498,433 | $17,558 (Stock Comp) | $1,209 (RSU Div) | $0 | $517,200 | | Retained Earnings | $794,739 | $150,848 | $(52,988) | $(166,959) | $724,431 | | Total Maximus Shareholders' Equity | $1,247,792 | $150,848 | $(52,988) | $(166,959) | $1,194,947 | - Shareholders' equity decreased from $1,248.2 million at September 30, 2019, to $1,194.9 million at June 30, 2020, primarily due to significant common stock repurchases ($167.0 million) and cash dividends paid ($53.0 million), partially offset by net income[26][80] Notes to Unaudited Consolidated Financial Statements Provides detailed explanations of accounting policies, segment information, and other financial disclosures 1. Organization and Basis of Presentation Describes the basis of financial statement preparation and impact of the COVID-19 pandemic on estimates - The unaudited consolidated financial statements are prepared in accordance with GAAP for interim financial information and do not include all disclosures required for complete annual statements[33] - The COVID-19 pandemic has increased uncertainty in estimates, particularly for revenue recognition, cost estimation, and goodwill impairment, due to reduced ability to use past results for future performance[35][36] - Bad debt expense of $8.8 million was recorded for the nine months ended June 30, 2020, due to payment concerns related to the COVID-19 pandemic[37][113] - Effective October 1, 2019, the company adopted ASU No. 2016-02, Leases (Topic 842), recognizing a lease liability of $214.5 million and operating lease right-of-use assets, with no material impact on retained earnings or statements of operations/cash flows[39][40][41] - Forthcoming accounting changes include ASU No. 2018-15 (Cloud Computing Arrangement Costs), ASU No. 2016-13 (Credit Losses), and ASU No. 2017-04 (Goodwill Impairment), all effective October 1, 2020[43][44][45] 2. Segment Information Provides financial data broken down by the company's operating segments: U.S. Health, U.S. Federal, and Outside U.S. - Maximus operates through three segments: U.S. Health and Human Services, U.S. Federal Services, and Outside the U.S.[46][47] Segment Revenue (Three Months Ended June 30) Segment Revenue (Three Months Ended June 30): | Segment | 2020 (Thousands) | 2019 (Thousands) | Change (%) | | :--- | :--- | :--- | :--- | | U.S. Health & Human Services | $336,950 | $291,132 | 15.74% | | U.S. Federal Services | $450,143 | $292,295 | 54.00% | | Outside the U.S. | $114,244 | $147,283 | -22.43% | | Total Revenue | $901,337 | $730,710 | 23.35% | Segment Operating Income (Three Months Ended June 30) Segment Operating Income (Three Months Ended June 30): | Segment | 2020 (Thousands) | 2019 (Thousands) | Change (%) | | :--- | :--- | :--- | :--- | | U.S. Health & Human Services | $61,033 | $54,250 | 12.50% | | U.S. Federal Services | $39,233 | $33,907 | 15.71% | | Outside the U.S. | $(5,817) | $4,989 | -216.57% | | Total Operating Income | $87,309 | $83,594 | 4.45% | - U.S. Federal Services saw significant revenue growth (54.0% for Q3, 51.4% for 9M) primarily due to the citizen engagement centers acquisition and the Census Questionnaire Assistance (CQA) contract[48][104] - Outside the U.S. segment experienced a substantial decline in revenue and shifted to an operating loss due to the COVID-19 pandemic's impact on employment services and health assessments[48][95][100] 3. Leases Details the company's lease accounting policies, costs, and related balance sheet impacts - The company recognizes lease liabilities and right-of-use assets on the balance sheet for contracts allowing control over identified property or equipment[51][52][53] Total Operating Lease Costs (Three and Nine Months Ended June 30, 2020) Total Operating Lease Costs (Three and Nine Months Ended June 30, 2020): | Cost Type | Three Months (Thousands) | Nine Months (Thousands) | | :--- | :--- | :--- | | Operating lease cost | $25,905 | $74,592 | | Short-term lease cost | $2,548 | $6,111 | | Variable lease cost | $4,106 | $9,395 | | Total operating lease costs | $32,559 | $90,098 | - The weighted average incremental borrowing rate for lease liability calculation at June 30, 2020, was 3.8%, and the weighted average remaining lease term was 2.9 years[55][57] - Cash payments for lease liabilities totaled $83.7 million for the nine months ended June 30, 2020[58] 4. Revenue Recognition Explains the company's revenue recognition policies and the impact of COVID-19 on contract estimates - Revenue is recognized over time as performance obligations are satisfied, typically for a series of distinct services[59] Revenue by Contract Type (Nine Months Ended June 30) Revenue by Contract Type (Nine Months Ended June 30): | Contract Type | 2020 (Thousands) | 2019 (Thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Performance-based | $864,077 | $834,531 | 3.54% | | Cost-plus | $1,184,425 | $756,227 | 56.62% | | Fixed price | $352,255 | $429,962 | -18.07% | | Time and materials | $136,944 | $111,129 | 23.23% | | Total revenue | $2,537,701 | $2,131,849 | 19.04% | - The COVID-19 pandemic has complicated revenue estimates, especially for outcome-based contracts in the Outside the U.S. Segment, leading to revised estimates and a reduction in unbilled revenue[38][68][69] - Reductions in revenue from changes in estimates were $1.4 million for the three months and $9.1 million for the nine months ended June 30, 2020[71] - Remaining performance obligations totaled approximately $325 million at June 30, 2020, with about 60% expected to be recognized within the next 12 months[74] 5. Earnings Per Share Presents the calculation of basic and diluted earnings per share, including share outstanding data Weighted Average Shares Outstanding (Three and Nine Months Ended June 30) Weighted Average Shares Outstanding (Three and Nine Months Ended June 30): | Metric | Three Months 2020 (Thousands) | Three Months 2019 (Thousands) | Nine Months 2020 (Thousands) | Nine Months 2019 (Thousands) | | :--- | :--- | :--- | :--- | :--- | | Basic weighted average shares outstanding | 61,882 | 64,405 | 63,463 | 64,534 | | Diluted earnings per share denominator | 62,102 | 64,759 | 63,666 | 64,800 | - Approximately 253,000 and 250,000 unvested restricted stock units were excluded from diluted EPS calculations for the three and nine months ended June 30, 2020, respectively, as their inclusion would have been antidilutive[75] 6. Acquisitions and Divestiture Summarizes recent acquisition and divestiture activities and their strategic rationale - Acquired General Dynamics Information Technology's citizen engagement centers business for $430.7 million in November 2018, strengthening the U.S. Federal Services Segment[76] - Acquired GT Hiring Solutions (Canada) for $6.2 million in August 2019 and InjuryNet Australia Pty Limited for $3.4 million in February 2020, both integrated into the Outside the U.S. Segment[77][78] - Sold Q2 Administrators LLC for $3.3 million on May 1, 2020, resulting in a gain of $1.7 million, to avoid potential conflicts of interest[79] 7. Supplemental Disclosures Provides additional financial details, including stock repurchases, restricted cash, and tax payments - The Board authorized up to $200 million in common stock repurchases, which was concluded on March 25, 2020. During the nine months ended June 30, 2020, $167.0 million was used to repurchase 2,767,000 shares[80][82] - Restricted cash, held as collateral or on behalf of clients, totaled $14.4 million at June 30, 2020, and is included in cash, cash equivalents, and restricted cash[84][85] - Interest payments for the nine months ended June 30, 2020, were $1.2 million, and income tax payments were $55.6 million[85][86] 8. Litigation Outlines ongoing legal matters and management's assessment of their potential financial impact - The company is subject to various audits, investigations, and lawsuits, but management does not believe the outcome of any existing matter would have a material adverse effect on its financial position, results of operations, or cash flows[87] - Two Medicaid disallowances totaling $31 million are asserted against a state Medicaid agency, with the state seeking reimbursement from Maximus. Maximus believes its exposure is limited to its fees, with school districts responsible for the remainder[88][89] - One disallowance of $12 million was upheld by a U.S. District Court in February 2020 and is under appeal; the other $19 million disallowance is pending at the U.S. Health and Human Services Departmental Appeals Board[89] 9. Subsequent Events Reports significant events occurring after the balance sheet date, such as dividend declarations - On July 3, 2020, the Board of Directors declared a quarterly cash dividend of $0.28 per share, payable on August 31, 2020, amounting to approximately $17 million[90] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's analysis of financial performance, condition, COVID-19 impact, liquidity, and critical accounting policies Business Overview Describes Maximus's role as a global operator of government health and human services programs - Maximus is a leading operator of government health and human services programs worldwide, providing business process services (BPS) in health and human services markets[92][93] - Growth has been driven by new work from the Affordable Care Act (ACA) and expansion in clinical services, supplemented by acquisitions[93] COVID-19 Pandemic Impact Assesses the operational and financial effects of the COVID-19 pandemic across company segments - Maximus implemented a hybrid operational model, transitioning most U.S. employees to work-from-home and ensuring safe on-site environments with strict protocols (social distancing, masks, temperature checks, sanitization)[94][95] - Operations in some locations, particularly welfare-to-work services and face-to-face assessments outside the U.S., have been suspended or slowed due to local restrictions and employment market uncertainties[95] - The company has funded additional administrative leave, sick leave, and emergency paid family and medical leave programs to assist employees[95] - Anticipates returning to previous performance levels once the pandemic abates, though timing is uncertain and may vary by contract and location[96] Acquisitions Strategy Outlines the company's strategy for acquisitions, focusing on growth and market expansion - Acquisitions have successfully enabled increased future organic growth, as well as expanded business processes, knowledge, and client relationships into adjacent markets and new geographies[97] - Significant acquisition activity is paused due to COVID-19 uncertainties, but smaller 'tuck-in' transactions supporting future organic growth continue[97] Financial Overview Summarizes the company's financial position, liquidity, and long-term growth drivers amidst the pandemic - The global pandemic began impacting operations in March 2020, with varied effects across each segment[98] - U.S. Health & Human Services and U.S. Federal Services experienced less disruption, with some positive impacts from new COVID-19 related work (e.g., contact tracing, unemployment support) and expansion of the Census Questionnaire Assistance contract[100] - The Outside the U.S. Segment faced immediate and significant negative impacts due to its employment-related work and health assessments, leading to sharp declines in outcomes-based revenue[100][101] - The company maintains a strong customer base, primarily government entities, and believes it has adequate cash resources ($81.5 million) and credit availability ($255 million) to meet obligations[99] - Long-term, demographic and legislative trends are expected to continue driving business growth[99] Results of Operations Analyzes the company's consolidated and segment-specific financial performance for the reporting periods Consolidated Results of Operations Analyzes the overall financial performance, including revenue, gross profit, and net income trends Consolidated Financial Performance (Three Months Ended June 30) Consolidated Financial Performance (Three Months Ended June 30): | Metric | 2020 (Thousands) | 2019 (Thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | $901,337 | $730,710 | 23.35% | | Gross profit | $185,603 | $174,247 | 6.52% | | Gross profit percentage | 20.6% | 23.8% | -3.2 ppt | | Operating income | $87,309 | $83,594 | 4.45% | | Operating income percentage | 9.7% | 11.4% | -1.7 ppt | | Net income attributable to Maximus | $64,464 | $62,898 | 2.49% | | Diluted EPS | $1.04 | $0.97 | 7.22% | Consolidated Financial Performance (Nine Months Ended June 30) Consolidated Financial Performance (Nine Months Ended June 30): | Metric | 2020 (Thousands) | 2019 (Thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | $2,537,701 | $2,131,849 | 19.04% | | Gross profit | $514,151 | $502,934 | 2.23% | | Gross profit percentage | 20.3% | 23.6% | -3.3 ppt | | Operating income | $203,755 | $239,531 | -14.94% | | Operating income percentage | 8.0% | 11.2% | -3.2 ppt | | Net income attributable to Maximus | $150,848 | $180,735 | -16.53% | | Diluted EPS | $2.37 | $2.79 | -15.05% | - Revenue growth for the three and nine months ended June 30, 2020, was primarily driven by the citizen engagement centers business acquisition in the U.S. Federal Services Segment and new COVID-19 related work[104] - SG&A expenses increased year-over-year due to bad debt charges ($8.8 million), increased business development, expanded scope of operations, and IT transformation initiatives, partially offset by a $1.7 million gain on sale of Q2 Administrators LLC[108][113] U.S. Health & Human Services Segment Details the financial performance and operational trends of the U.S. Health & Human Services segment U.S. Health & Human Services Segment Performance (Three and Nine Months Ended June 30) U.S. Health & Human Services Segment Performance (Three and Nine Months Ended June 30): | Metric | Three Months 2020 (Thousands) | Three Months 2019 (Thousands) | Nine Months 2020 (Thousands) | Nine Months 2019 (Thousands) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $336,950 | $291,132 | $957,929 | $876,082 | | Gross profit percentage | 27.6% | 29.8% | 28.0% | 29.8% | | Operating income percentage | 18.1% | 18.6% | 17.3% | 19.1% | - Revenue increased organically by 15.7% for the three months and 9.3% for the nine months ended June 30, 2020[114] - Operating income margins are anticipated to be between 17% and 18% for the full fiscal year[115] - The segment faces risks of potential budgetary pressures and delayed payments from U.S. state governments due to increased demand for social services and reduced tax revenues[116] U.S. Federal Services Segment Examines the financial results and key drivers of the U.S. Federal Services segment U.S. Federal Services Segment Performance (Three and Nine Months Ended June 30) U.S. Federal Services Segment Performance (Three and Nine Months Ended June 30): | Metric | Three Months 2020 (Thousands) | Three Months 2019 (Thousands) | Nine Months 2020 (Thousands) | Nine Months 2019 (Thousands) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $450,143 | $292,295 | $1,210,105 | $799,018 | | Gross profit percentage | 18.8% | 22.9% | 19.2% | 22.0% | | Operating income percentage | 8.7% | 11.6% | 8.4% | 10.6% | - Revenue increased significantly by 54.0% for the three months and 34.8% for the nine months ended June 30, 2020, primarily due to the citizen engagement centers acquisition and the Census Questionnaire Assistance (CQA) contract[120][121][124] - The CQA contract contributed approximately $380 million in revenue for the nine months ended June 30, 2020, and is anticipated to provide $500 million for fiscal year 2020[124] - Operating income margins are anticipated to be between 8% and 9% for the remainder of the fiscal year[125] - The segment experienced increased revenue from short-term COVID-19 related contracts (e.g., contact tracing), which generally have lower operating margins, tempering overall segment profitability[118] Outside the United States Segment Reviews the financial performance and COVID-19 impact on the Outside the U.S. segment Outside the U.S. Segment Performance (Three and Nine Months Ended June 30) Outside the U.S. Segment Performance (Three and Nine Months Ended June 30): | Metric | Three Months 2020 (Thousands) | Three Months 2019 (Thousands) | Nine Months 2020 (Thousands) | Nine Months 2019 (Thousands) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $114,244 | $147,283 | $369,667 | $456,749 | | Gross profit percentage | 6.9% | 14.1% | 3.7% | 14.6% | | Operating (loss)/income percentage | -5.1% | 3.4% | -9.1% | 3.0% | - Revenue declined significantly by 22.4% for the three months and 19.1% for the nine months ended June 30, 2020, primarily due to the immediate and significant negative impact of the COVID-19 pandemic on performance-based outcome contracts (welfare-to-work) and health assessment volumes[128][130][131][132] - The segment revised estimates for jobseeker employment outcomes, reducing revenue by approximately $24 million in Q2 2020[131] - Anticipates continued operating losses for the remainder of this fiscal year, but expects an expanded need for services in the longer term to address economic downturn and unemployment[133] - Currency effects from a stronger U.S. Dollar also contributed to year-over-year declines in revenue and costs[134] Liquidity and Capital Resources Examines the company's cash position, credit availability, and strategies for managing liquidity - The COVID-19 pandemic negatively affected cash flows since March 2020, with some delays in customer payments[136] - At June 30, 2020, the company had $81.5 million in unrestricted cash and $255 million available on its credit facility, believing it has adequate liquidity[136] - The company plans to utilize payroll credits and tax payment deferrals in the U.S. and U.K. and has furloughed employees in the U.K. to manage liquidity[137] - Quarterly dividend payments are not anticipated to be disrupted, but share purchases and significant M&A activity are paused[136] Cash Flows Provides a detailed analysis of cash movements from operating, investing, and financing activities Summary of Cash Flow Information (Nine Months Ended June 30) Summary of Cash Flow Information (Nine Months Ended June 30): | Activity | 2020 (Thousands) | 2019 (Thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Net cash from operations | $96,083 | $263,711 | -63.57% | | Cash used in investing activities | $(27,412) | $(440,706) | 93.78% | | Cash used in financing activities | $(89,001) | $(99,601) | 10.64% | | Net decrease in cash, cash equivalents and restricted cash | $(20,504) | $(277,590) | 92.61% | - Cash flows from operations decreased significantly due to lower operating income and delayed cash collections, with Days Sales Outstanding (DSO) increasing to 84 days at June 30, 2020 (from 72 days at Sep 30, 2019)[140] - Cash used in investing activities decreased substantially due to lower acquisition spending in 2020[141] - Cash used in financing activities included $167.0 million for common stock repurchases and $142.5 million of net borrowings in 2020[142] Free Cash Flow (Nine Months Ended June 30) Free Cash Flow (Nine Months Ended June 30): | Metric | 2020 (Thousands) | 2019 (Thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Cash flows from operations | $96,083 | $263,711 | -63.57% | | Purchases of property and equipment and capitalized software costs | $(28,436) | $(39,033) | 27.15% | | Free cash flow - non-GAAP | $67,647 | $229,220 | -70.49% | Critical Accounting Policies and Estimates Discusses key accounting policies and estimates, highlighting areas of significant judgment and uncertainty - The preparation of financial statements requires significant estimates and assumptions, particularly for revenue recognition, cost estimation, goodwill and long-lived asset realizability, and income taxes[145] - Estimates are based on historical experience and future expectations, but the COVID-19 pandemic increases volatility and reduces the reliability of past results for future performance[36][145] - Changes were made to lease accounting during the nine months ended June 30, 2020, as detailed in Note 3[146] Non-GAAP Financial Measures Explains the use and reconciliation of non-GAAP financial measures for enhanced performance analysis - Non-GAAP measures (constant currency basis, pro forma revenue, acquired revenue, organic revenue, free cash flow, DSO, Adjusted EBITA, Adjusted EBITDA, Pro Forma Adjusted EBITDA) are used to provide additional insights into business performance, complementing GAAP measures[147][148][150][151][152][153] - Constant currency basis adjusts foreign business results using prior fiscal year exchange rates to exclude currency fluctuation effects[148] - Free cash flow is calculated as cash flows from operations less purchases of property and equipment and capitalized software costs[151][144] Adjusted EBITA and EBITDA Reconciliation (Nine Months Ended June 30) Adjusted EBITA and EBITDA Reconciliation (Nine Months Ended June 30): | Metric | 2020 (Thousands) | 2019 (Thousands) | | :--- | :--- | :--- | | Net income attributable to Maximus | $150,848 | $180,735 | | Interest (income)/expense, net | $513 | $181 | | Provision of income taxes | $51,963 | $59,511 | | Amortization of intangible assets | $26,734 | $24,026 | | Stock compensation expense | $17,558 | $15,323 | | Acquisition-related expenses | $4,162 | $2,982 | | Gain on sale of a business | $(1,706) | $0 | | Adjusted EBITA - non-GAAP | $250,072 | $282,758 | | Depreciation and amortization of property, plant, equipment and capitalized software | $47,496 | $34,588 | | Adjusted EBITDA - non-GAAP | $297,568 | $317,346 | | Additional adjusted EBITDA related to citizen engagement centers acquisition | $0 | $6,695 | | Pro Forma Adjusted EBITDA - non-GAAP | $297,568 | $324,041 | Item 3. Quantitative and Qualitative Disclosures about Market Risk Details exposure to market risks, including foreign currency and interest rate fluctuations, with potential impact analysis - The company's primary market risks are foreign currency exchange rates and interest rates[154] Potential Impact of 10% Unfavorable Exchange Rate Movement Potential Impact of 10% Unfavorable Exchange Rate Movement (Thousands): | Metric | June 30, 2020 | September 30, 2019 | | :--- | :--- | :--- | | Comprehensive income attributable to Maximus | $(15,923) | $(17,630) | | Net decrease in cash and cash equivalents | $(5,287) | $(1,890) | - At June 30, 2020, net assets denominated in foreign currencies totaled $159.2 million, including $52.9 million in cash and cash equivalents[155] - Interest rate risk arises from the revolving credit facility ($145 million borrowed at June 30, 2020), with a 1% increase in interest rates potentially leading to an annualized additional expense of $1.5 million[158] Item 4. Controls and Procedures Evaluates the effectiveness of disclosure controls and procedures, confirming no material changes in internal controls - Disclosure controls and procedures were evaluated as effective as of June 30, 2020, ensuring timely and accurate reporting of information[159] - No material changes in internal control over financial reporting occurred during the last fiscal quarter[160] Part II. Other Information Covers legal proceedings, risk factors, and required exhibits for the reporting period Item 1. Legal Proceedings Details ongoing legal proceedings, audits, and investigations, with management assessing no material adverse effect - Maximus is subject to audits, investigations, and lawsuits related to compliance with laws governing government contracts[162] - Management believes the outcome of existing legal matters will not have a material adverse effect on consolidated financial position, results of operations, or cash flows[162] - Two Medicaid disallowances totaling $31 million are asserted against a state Medicaid agency, with Maximus's exposure believed to be limited to its fees[163] Item 1A. Risk Factors Refers to comprehensive risk factor discussions in prior filings, highlighting potential material adverse effects - Readers should consider the risk factors discussed in the Form 10-K for fiscal year ended September 30, 2019, and the Form 10-Q for the quarter ended March 31, 2020[164] - These risks could materially and adversely affect the company's business, financial condition, and results of operations[164] Item 6. Exhibits Lists all exhibits filed with the Form 10-Q, including SOX certifications and XBRL financial statements - Exhibits include certifications pursuant to Section 302 and 906 of the Sarbanes-Oxley Act of 2002[166] - XBRL formatted financial statements (Consolidated Statements of Operations, Comprehensive Income, Balance Sheets, Cash Flows, Changes in Shareholders' Equity, and Notes) are filed electronically[166] Signatures Contains required signatures, confirming due authorization and filing of the report - The report was signed on August 6, 2020, by Richard J. Nadeau, Chief Financial Officer, on behalf of Maximus, Inc.[171]