Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended December 31, 2019 and 2018
1. Organization and Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. As permitted by these instructions, they do not include all of the information 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 have been included. All intercompany balances and transactions have been eliminated in consolidation. The results of operations for the three months ended December 31, 2019, are not necessarily indicative of the results that may be expected for the full fiscal year. The balance sheet at September 30, 2019, 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.
The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities and the reported amounts of revenue and expenses. On an ongoing basis, we evaluate our estimates including those related to revenue recognition and cost estimation on certain contracts, the realizability of goodwill and amounts related to income taxes, certain accrued liabilities and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates.
These financial statements should be read in conjunction with the consolidated audited financial statements and the notes thereto at September 30, 2019 and 2018, and for each of the three years ended September 30, 2019, included in our Annual Report on Form 10-K which was filed with the Securities and Exchange Commission on November 26, 2019.
Changes in financial reporting
Leases
Effective October 1, 2019, we adopted ASU No. 2016-02, Leases (Topic 842). The new standard requires that assets and liabilities arising under leases be recognized on the balance sheet, except for those with an initial term of less than 12 months. We adopted this standard using a modified retrospective approach. Accordingly, we did not recast prior period financial information. Certain elections were made in adopting the standard.
•We elected to use the package of practical expedients which, among other things, allows us to not reassess historical lease classification.
•We do not separate lease and non-lease components for all classes of leases, which allows us to account for a lease as a single component.
•We used the optional transition method, which did not require us to recast our comparative periods.
•We did not use the hindsight practical expedients, which would have allowed us to use hindsight in determining the reasonably certain lease term.
•We did not adjust our accounting for leases with an initial term of twelve months or less.
Upon adopting Topic 842, we recognized a lease liability of $214.5 million, reflecting the present value of the future remaining minimum lease payments. Changes to our opening balance sheet are summarized below. There was no cumulative impact to our retained earnings and the changes did not cause any material changes in our statements of operations or our statements of cash flows. The adoption of Topic 842 does not affect our compliance with our existing contracts, including our credit facility.
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(dollars in thousands)
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Balance at September 30, 2019
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Adjustments due to adoption of new standard
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Opening balance at October 1, 2019
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Assets
|
|
|
|
|
|
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Prepaid expenses and other current assets
|
|
$
|
62,481
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|
|
$
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(6,131)
|
|
|
$
|
56,350
|
|
Operating lease right-of-use assets
|
|
—
|
|
|
206,314
|
|
|
206,314
|
|
Liabilities and shareholders' equity
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
177,786
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|
|
(5,250)
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|
|
172,536
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|
Operating lease liabilities
|
|
—
|
|
|
88,276
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|
|
88,276
|
|
Other current liabilities
|
|
12,709
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(648)
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|
|
12,061
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Operating lease liabilities, net of current portion
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|
—
|
|
|
126,197
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|
|
126,197
|
|
Other long-term liabilities
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20,313
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|
|
(8,392)
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|
|
11,921
|
|
At the adoption of Topic 842, the Company recognized deferred tax assets and liabilities corresponding to the operating lease liabilities and operating right-of-use assets, respectively. These balances offset each other and no net effect resulted from this change.
Additional information and disclosures relating to this change are included within "Note 3. Leases."
Forthcoming changes
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. We will adopt this guidance on October 1, 2020. The guidance may be adopted early and we may adopt using either a prospective or retrospective methodology. We are currently assessing the future impact of this update on its consolidated financial statements and related disclosures.
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. We will adopt this guidance on October 1, 2020 and any changes will be recorded as a cumulative adjustment to retained earnings. We are still assessing the effect of this standard on 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 will adopt this guidance on October 1, 2020. The effect of this new standard will depend upon the outcome of future goodwill impairment tests.
Other recent accounting pronouncements are not expected to have a material effect on our financial statements.
2. Segment Information
The table below provides certain financial information for each of our business segments. We operate our business through three segments.
•Our U.S. Health and Human Services Segment provides a variety of business process services such as program administration, appeals and assessments services, 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), Medicaid and the Children’s Health Insurance Program (CHIP). We also serve as administrators in state-based welfare-to-work and child support programs.
•Our U.S. Federal Services Segment provides business process solutions, including program administration, appeals and assessment services, as well as system and software development and maintenance services for various U.S. federal civilian programs. This segment also contains certain state-based assessments and appeals work that is part of the segment's heritage within the Medicare Appeals portfolio and continues to be managed within this segment.
•Our Outside the U.S. Segment provides business process solutions for governments and commercial clients outside the U.S., including health and disability assessments, program administration and case management for employment services and other work-support programs. We deliver services in the United Kingdom, including the Health Assessment Advisory Service (HAAS), the Work & Health Programme and Fair Start; Australia, including jobactive and the Disability Employment Service; Canada, including Health Insurance British Columbia and the Employment Program of British Columbia; Saudi Arabia and Singapore.
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|
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|
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Three Months Ended December 31,
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(dollars in thousands)
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2019
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% (1)
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2018
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% (1)
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Revenue:
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U.S. Health & Human Services
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|
$
|
312,281
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|
|
|
|
$
|
294,213
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|
|
|
U.S. Federal Services
|
|
366,571
|
|
|
|
|
216,987
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|
|
|
Outside the U.S.
|
|
139,377
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|
|
|
|
153,419
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|
|
|
Total
|
|
$
|
818,229
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|
|
|
|
$
|
664,619
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|
|
Gross profit:
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|
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U.S. Health & Human Services
|
|
$
|
89,590
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28.7%
|
|
|
$
|
88,031
|
|
|
29.9%
|
|
U.S. Federal Services
|
|
70,821
|
|
|
19.3%
|
|
|
47,985
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|
|
22.1%
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Outside the U.S.
|
|
15,039
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|
|
10.8%
|
|
|
23,249
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|
|
15.2%
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Total
|
|
$
|
175,450
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|
|
21.4%
|
|
|
$
|
159,265
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|
|
24.0%
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|
Selling, general & administrative expense:
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|
|
|
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|
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U.S. Health & Human Services
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$
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31,398
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10.1%
|
|
|
$
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32,139
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|
|
10.9%
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U.S. Federal Services
|
|
39,239
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|
|
10.7%
|
|
|
26,632
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|
|
12.3%
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|
Outside the U.S.
|
|
16,053
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|
|
11.5%
|
|
|
18,808
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|
|
12.3%
|
|
|
|
|
|
|
|
|
|
|
Other (2)
|
|
537
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|
|
NM
|
|
2,092
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|
|
NM
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Total
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|
$
|
87,227
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|
|
10.7%
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|
|
$
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79,671
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|
|
12.0%
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|
Operating income:
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|
|
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U.S. Health & Human Services
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|
$
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58,192
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|
18.6%
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|
|
$
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55,892
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|
|
19.0%
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|
U.S. Federal Services
|
|
31,582
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|
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8.6%
|
|
|
21,353
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|
|
9.8%
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Outside the U.S.
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(1,014)
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(0.7)%
|
|
|
4,441
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|
|
2.9%
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Amortization of intangible assets
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|
(9,088)
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|
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NM
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|
(5,458)
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|
|
NM
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|
|
|
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|
|
|
|
|
|
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Other
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(537)
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|
|
NM
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|
(2,092)
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|
|
NM
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Total
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|
$
|
79,135
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|
|
9.7%
|
|
|
$
|
74,136
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|
|
11.2%
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(1) Percentage of respective segment revenue. Percentages not considered meaningful are marked “NM.”
(2) Other selling, general and administrative expenses includes credits and costs that are not allocated to a particular segment. In the three months ended December 31, 2018, these other costs include $2.7 million of costs related to the acquisition of the citizen engagement centers business.
Identifiable assets for the segments are shown below (in thousands):
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|
|
|
|
|
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December 31, 2019
|
|
September 30, 2019
|
U.S. Health & Human Services
|
|
$
|
584,038
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|
|
$
|
500,641
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|
U.S. Federal Services
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|
922,613
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|
|
795,553
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|
Outside the U.S.
|
|
245,289
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|
|
234,769
|
|
Corporate
|
|
237,851
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|
|
214,769
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Total
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|
$
|
1,989,791
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|
|
$
|
1,745,732
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|
3. Leases
Beginning October 1, 2019, we identify contracts which are, or contain, leases where a contract allows us the right to control identified property or equipment for a period of time in return for consideration. Our leases are typically for office space or facilities, as well as some equipment leases. Where contracts include both lease and non-lease components, we do not typically separate the non-lease components in our accounting.
At the inception of a lease, we recognize a liability for future minimum lease payments based upon the present value of those payments.
•In identifying our future minimum lease payments, we do not include variable lease costs, such as those for maintenance or utilities. These are recorded as lease expenses in the period in which they are incurred.
•In identifying future lease payments, we do not include short-term leases, identified as those with an initial term of twelve months or less.
•Lease options are included within our lease liability only where it is reasonably certain that we will utilize those periods of the lease and incur the related costs.
•In calculating the fair value of our lease liability, we utilize an estimate of our collateralized incremental borrowing rate. This estimate is based upon publicly-available information adjusted for company-specific, country-specific and lease-specific factors. The weighted average incremental borrowing rate utilized at December 31, 2019 is 3.6%.
Over the course of a lease, the lease liability is reduced as scheduled lease payments are made and increased as the implied interest charges are added.
Our right-of-use asset is based upon the lease liability at the contract inception but is adjusted over the life of the lease by lease prepayments, additional costs or lease incentives. The right-of-use asset is amortized on a straight-line basis over the lease term, offset by the interest accretion recorded on the lease liability.
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, lease costs are recorded in "cost of revenue". Facilities and assets which serve management and support functions are expensed through "selling, general and administrative expenses". Costs recorded in the three months ended December 31, 2019 are summarized below.
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|
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|
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|
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(dollars in thousands)
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|
|
Three months ended December 31, 2019
|
Operating lease cost
|
|
|
|
$
|
25,250
|
|
Short-term lease cost
|
|
|
|
2,110
|
|
Variable lease cost
|
|
|
|
3,334
|
|
Total operating lease costs
|
|
|
|
$
|
30,694
|
|
Future minimum lease payments for noncancelable operating leases as of December 31, 2019 are shown below.
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|
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(dollars in thousands)
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Office space
|
|
Equipment
|
|
Total
|
For the years ended September 30,
|
|
|
|
|
|
Remainder of 2020
|
$
|
63,960
|
|
|
$
|
6,336
|
|
|
$
|
70,296
|
|
2021
|
58,107
|
|
|
6,812
|
|
|
64,919
|
|
2022
|
38,047
|
|
|
2,904
|
|
|
40,951
|
|
2023
|
25,691
|
|
|
124
|
|
|
25,815
|
|
2024
|
11,181
|
|
|
77
|
|
|
11,258
|
|
Thereafter
|
7,067
|
|
|
—
|
|
|
7,067
|
|
Total minimum lease payments
|
$
|
204,053
|
|
|
$
|
16,253
|
|
|
$
|
220,306
|
|
Less imputed interest
|
(11,269)
|
|
|
(1,792)
|
|
|
(13,061)
|
|
Total lease liabilities
|
$
|
192,784
|
|
|
$
|
14,461
|
|
|
$
|
207,245
|
|
Our weighted average remaining lease term at December 31, 2019 is 3.1 years.
For the three months ended December 31, 2019, we made cash payments of $28.1 million for amounts included in our lease liabilities. New or amended leases resulted in additional right-of-use assets of $17.3 million.
4. 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Three Months Ended December 31, 2019
|
|
Three Months Ended December 31, 2018
|
Program administration
|
|
$
|
236,907
|
|
|
$
|
218,973
|
|
Assessments and appeals
|
|
33,831
|
|
|
37,221
|
|
Workforce and children services
|
|
29,386
|
|
|
23,903
|
|
Other
|
|
12,157
|
|
|
14,116
|
|
Total U.S. Health and Human Services
|
|
312,281
|
|
|
294,213
|
|
|
|
|
|
|
Program administration
|
|
281,688
|
|
|
140,121
|
|
Technology solutions
|
|
43,606
|
|
|
38,883
|
|
Assessments and appeals
|
|
41,277
|
|
|
37,983
|
|
Total U.S. Federal Services
|
|
366,571
|
|
|
216,987
|
|
|
|
|
|
|
Workforce and children services
|
|
57,239
|
|
|
73,278
|
|
Assessments and appeals
|
|
62,643
|
|
|
62,310
|
|
Program administration
|
|
17,094
|
|
|
15,320
|
|
Other
|
|
2,401
|
|
|
2,511
|
|
Total Outside the U.S.
|
|
139,377
|
|
|
153,419
|
|
|
|
|
|
|
Total revenue
|
|
$
|
818,229
|
|
|
$
|
664,619
|
|
By contract type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Three Months Ended December 31, 2019
|
|
Three Months Ended December 31, 2018
|
Performance-based
|
|
$
|
292,758
|
|
|
$
|
312,887
|
|
Cost-plus
|
|
362,811
|
|
|
175,298
|
|
Fixed price
|
|
119,216
|
|
|
147,151
|
|
Time and materials
|
|
43,444
|
|
|
29,283
|
|
Total revenue
|
|
$
|
818,229
|
|
|
$
|
664,619
|
|
By customer type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Three Months Ended December 31, 2019
|
|
Three Months Ended December 31, 2018
|
New York State government agencies
|
|
$
|
97,223
|
|
|
$
|
91,712
|
|
Other U.S. state government agencies
|
|
209,886
|
|
|
198,902
|
|
Total U.S. state government agencies
|
|
307,109
|
|
|
290,614
|
|
|
|
|
|
|
United States Federal Government agencies
|
|
351,833
|
|
|
198,278
|
|
International government agencies
|
|
130,816
|
|
|
142,781
|
|
Other, including local municipalities and commercial customers
|
|
28,471
|
|
|
32,946
|
|
Total revenue
|
|
$
|
818,229
|
|
|
$
|
664,619
|
|
By geography
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Three Months Ended December 31, 2019
|
|
Three Months Ended December 31, 2018
|
United States of America
|
|
$
|
678,852
|
|
|
$
|
511,200
|
|
United Kingdom
|
|
73,002
|
|
|
73,418
|
|
Australia
|
|
37,435
|
|
|
53,373
|
|
Rest of world
|
|
28,940
|
|
|
26,628
|
|
Total revenue
|
|
$
|
818,229
|
|
|
$
|
664,619
|
|
Contract balances
Differences in timing between revenue recognition and cash collection result in contract assets and contract liabilities. We classify these assets as accounts receivable — billed and billable and unbilled receivables; 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 will differ from actual rates incurred. If our actual rates are higher than the provisional billing rates, an asset is recorded for this variance; if the provisional billing rate is higher than our actual rate, we record a liability.
•Certain contracts include retainage balances, whereby revenue is earned but cash payments are held back by the customer for a period of time, typically to allow the customer to evaluate the quality of our performance. This balance is classified as accounts receivable - unbilled until restrictions on billing have been lifted.
•In certain contracts, we may receive funds from our customers prior to performing operations. These funds are typically referred to as “set-up costs” and reflect the need for us to make investments in infrastructure prior to providing a service. This investment in infrastructure is not a performance obligation which is distinct from the service that is subsequently provided and, as a result, revenue is not recognized based upon the establishment of this infrastructure, but rather over the course of the contractual relationship. The funds are initially recorded as deferred revenue and recognized over the term of the contract. Other contracts may not include set-up fees but will provide higher fees in earlier periods of the contract. The premium on these fees is deferred.
•Some of our contracts, notably our welfare-to-work contracts in the Outside the U.S. Segment, include payments for outcomes, such as job retention, which occur over several months. We are required to
estimate these outcome fees ahead of their realization and recognize this estimated fee over the period of delivery.
During the three months ended December 31, 2019 and 2018, we recognized revenue of $18.0 million and $21.8 million included in our deferred revenue balances at September 30, 2019 and 2018, respectively.
Contract estimates
We are required to use estimates in recognizing certain revenue.
•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.
•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.
Where we have changes to our estimates, these are recognized on a cumulative catch-up basis. In the three months ended December 31, 2019 and 2018, we reported reductions in revenue of $1.4 million and $1.5 million from changes in estimates, respectively.
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.
In the three months ended December 31, 2019 and 2018, we deferred $1.3 million and $3.1 million of costs, respectively, and recorded amortization expense of $2.2 million and $1.3 million, respectively. This amortization was recorded within our "cost of revenue" on our consolidated statements of operations.
Remaining performance obligations
At December 31, 2019, we had approximately $300 million of remaining performance obligations. We anticipate that we will recognize revenue on approximately 60% of this balance within the next twelve months. This balance excludes contracts with an original duration of twelve months or less, including contracts with a penalty-free termination for convenience clause, and any variable consideration which is allocated entirely to future performance obligations including variable transaction fees or fees tied directly to costs incurred.
5. Earnings Per Share
The weighted average number of shares outstanding used to compute earnings per share was as follows:
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Three Months Ended December 31,
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(shares in thousands)
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2019
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2018
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Basic weighted average shares outstanding
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64,597
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64,827
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Dilutive effect of unvested RSUs
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161
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150
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Denominator for diluted earnings per share
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64,758
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64,977
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Our dilutive earnings per share for the three months ended December 31, 2019 and 2018, excludes any effect from approximately 274,000 and 282,000 unvested restricted stock units, respectively, as adding them to our calculation would have been antidilutive.
6. Acquisitions
On November 16, 2018, we acquired General Dynamics Information Technology's citizen engagement centers business for $430.7 million. This acquisition strengthens our position in the administration of federal government programs and the business was integrated into our U.S. Federal Services Segment. We completed our allocation of the purchase price to the assets acquired and liabilities assumed in September 2019, including goodwill of $184.6 million and intangible assets of $122.3 million.
On August 16, 2019, we acquired 100% of the share capital of GT Hiring Solutions (2005) Inc. ("GT Hiring") for a purchase price estimated to be $6.1 million (8.1 million Canadian Dollars). The purchase price is subject to a net working capital true-up. GT Hiring provides employment services in British Columbia. We acquired GT Hiring to enhance the reach and capabilities of our Canadian employment services and, accordingly, the business has been integrated into our Outside the U.S. Segment. We are still in the process of finalizing the purchase price and the allocation of assets acquired and liabilities assumed. We recorded estimated goodwill and intangible assets balances of $1.7 million and $2.7 million, respectively, related to this acquisition. The goodwill represents the assembled workforce and enhanced knowledge, experience and reputation we have obtained from the acquisition and will be deductible for tax purposes. The intangible assets represent customer relationships, which will be amortized over seven years.
7. Supplemental Disclosures
Under a resolution adopted in June 2018, the Board of Directors authorized the purchase, at management's discretion, of up to $200 million of our common stock. During the three months ended December 31, 2019, we purchased 26,000 of our common shares at a cost of $1.9 million. During the three months ended December 31, 2018, we acquired approximately 654,000 common shares at a cost of $41.3 million. At December 31, 2019, $144.1 million remained available for future stock purchases. Subsequent to December 31, 2019, we have purchased a further 30,000 shares at a cost of $2.2 million.
During the three months ended December 31, 2019, we granted 287,000 restricted stock units to our board of directors and employees. These awards will vest ratably over one and five years, respectively.
Our deferred compensation plan uses both mutual fund and life insurance investments to fund its obligations. The mutual funds are recorded at fair value, based upon quoted prices in active markets, and the life insurance investments at cash surrender value; changes in value are reported in our consolidated statements of operations. At December 31, 2019, the deferred compensation plan held $22.1 million of the mutual fund investments.
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and other amounts included within current assets and liabilities that meet the definition of a financial instrument are shown at values equivalent to fair value due to the short-term nature of these items. Our accounts receivable billed and billable balance includes both amounts invoiced and amounts that are ready to be invoiced where the funds are collectible within standard invoice terms. Our accounts receivable unbilled balance includes balances where revenue has been
earned but no invoice was issued on or before December 31, 2019. Restricted cash represents funds which are held in our bank accounts but which we are precluded from using for general business needs through contractual requirements; these requirements include serving as collateral for lease, credit card or letter of credit arrangements or where we hold funds on behalf of clients. Restricted cash is included within "prepaid expenses and other assets" on our balance sheet and is included within "cash, cash equivalents and restricted cash" in our consolidated statements of cash flows. A reconciliation of these balances is shown below.
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Balance as of
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(dollars in thousands)
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December 31,
2019
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September 30, 2019
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December 31,
2018
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September 30, 2018
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Cash and cash equivalents
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$
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149,515
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$
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105,565
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$
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54,736
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$
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349,245
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Restricted cash (recorded within "other current assets")
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11,434
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10,927
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7,358
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7,314
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Cash, cash equivalents and restricted cash
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160,949
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116,492
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62,094
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356,559
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During the three months ended December 31, 2019 and 2018, we made interest payments of $0.2 million and $0.2 million, respectively.
During the three months ended December 31, 2019 and 2018, we made income tax payments of $6.3 million and $7.1 million, respectively.
8. 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, 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
A state Medicaid agency has been notified of two proposed disallowances by the Centers for Medicare and Medicaid Services (CMS) totaling approximately $31 million. From 2004 through 2009, we had a contract with the state agency in support of its school-based Medicaid claims. We entered into separate agreements with the school districts under which we assisted the districts with preparing and submitting claims to the state Medicaid agency which, in turn, submitted claims for reimbursement to CMS. The state has asserted that its agreement with us requires us to reimburse the state for the amounts owed to CMS. However, our agreements with the school districts require them to reimburse us for such amounts, and therefore we believe the school districts are responsible for any amounts that ultimately must be refunded to CMS. Although it is reasonably possible that a court could conclude we are responsible for the full balance of the disallowances, we believe our exposure in this matter is limited to our fees associated with this work and that the school districts will be responsible for the remainder. We have reserved 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. No legal action has been initiated against us.
9. Subsequent Events
On January 3, 2020, 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 28, 2020, to shareholders of record on February 14, 2020. Based upon the number of shares outstanding, we anticipate a cash payment of approximately $18 million.