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As filed with the Securities and Exchange Commission on May 5, 2022
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark one)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________to__________.
Commission file number: 1-12997


Maximus, Inc.
(Exact name of registrant as specified in its charter)
Virginia 54-1000588
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
1600 Tysons Boulevard, McLean, Virginia
22102
(Address of principal executive offices)
(Zip Code)
(703) 251-8500
(Registrant's telephone number, including the area code)
1891 Metro Center Drive, Reston, Virginia 20190
(Former address)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, no par value MMS New 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 accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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 Act). Yes ☐ No ☒
There were 61,412,807 shares of the registrant's Common Stock outstanding as of May 2, 2022.


Table of Contents to Second Quarter 2022 Form 10-Q
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Unless otherwise specified, references in this Quarterly Report on Form 10-Q to "our," "we," "us," "Maximus," the "Company," and "our business" refer to Maximus, Inc. and its 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," "forecast," "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, the impact of the coronavirus ("COVID-19") global pandemic and related policy 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 effects of future legislative or government budgetary and 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;
our ability to manage our growth, including acquired businesses;
difficulties in integrating or achieving projected revenues, earnings, and other benefits associated with acquired businesses;
the outcome of reviews or audits, which might result in financial penalties and impair our ability to respond to invitations for new work;
our ability to manage capital investments and startup costs incurred before receiving related contract payments;
our ability to manage our 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;
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;
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;
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" of our Annual Report on From 10-K, filed with the Securities and Exchange Commission on November 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.
3

PART I - Financial Information
Item 1. Financial Statements
Maximus, Inc.
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended For the Six Months Ended
March 31, 2022 March 31, 2021 March 31, 2022 March 31, 2021
(in thousands, except per share amounts)
Revenue $ 1,177,326  $ 959,280  $ 2,328,202  $ 1,904,834 
Cost of revenue 948,875  728,622  1,871,596  1,468,121 
Gross profit 228,451  230,658  456,606  436,713 
Selling, general, and administrative expenses 130,307  112,402  254,528  224,369 
Amortization of intangible assets 22,856  5,070  45,261  11,586 
Operating income 75,288  113,186  156,817  200,758 
Interest expense (9,438) (756) (19,076) (962)
Other income/(expense), net 715  (520) 404  (1,295)
Income before income taxes 66,565  111,910  138,145  198,501 
Provision for income taxes 16,469  31,296  34,719  53,810 
Net income $ 50,096  $ 80,614  $ 103,426  $ 144,691 
Earnings per share:
Basic $ 0.81  $ 1.30  $ 1.66  $ 2.33 
Diluted $ 0.80  $ 1.29  $ 1.66  $ 2.33 
Weighted average shares outstanding:
Basic 62,227  62,026  62,256  62,022 
Diluted 62,381  62,294  62,409  62,212 
Dividends declared per share $ 0.28  $ 0.28  $ 0.56  $ 0.56 
See accompanying notes to unaudited consolidated financial statements.
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Maximus, Inc.
Consolidated Statements of Comprehensive Income
(Unaudited)
For the Three Months Ended For the Six Months Ended
March 31, 2022 March 31, 2021 March 31, 2022 March 31, 2021
(in thousands)
Net income $ 50,096  $ 80,614  $ 103,426  $ 144,691 
Other comprehensive income, net of tax:
Foreign currency translation adjustments (23) 770  436  7,693 
Net gains on cash flow hedge, net of tax 10,689  —  13,374  — 
Other comprehensive income 10,666  770  13,810  7,693 
Comprehensive income $ 60,762  $ 81,384  $ 117,236  $ 152,384 
See accompanying notes to unaudited consolidated financial statements.
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Maximus, Inc.
Consolidated Balance Sheets
March 31, 2022 September 30, 2021
(unaudited)
(in thousands)
Assets:
Cash and cash equivalents $ 92,638  $ 135,061 
Accounts receivable, net 885,685  834,819 
Income taxes receivable 14,757  5,413 
Prepaid expenses and other current assets 97,420  104,201 
Total current assets 1,090,500  1,079,494 
Property and equipment, net 57,945  62,627 
Capitalized software, net 42,877  42,868 
Operating lease right-of-use assets 160,183  179,349 
Goodwill 1,780,370  1,774,406 
Intangible assets, net 851,564  879,168 
Deferred contract costs, net 42,813  36,486 
Deferred compensation plan assets 44,773  46,738 
Deferred income taxes 2,635  990 
Other assets 34,036  16,839 
Total assets $ 4,107,696  $ 4,118,965 
Liabilities and Shareholders' Equity:
Liabilities:
Accounts payable and accrued liabilities $ 302,912  $ 305,565 
Accrued compensation and benefits 142,512  186,809 
Deferred revenue, current portion 122,070  98,588 
Income taxes payable 3,883  6,782 
Long-term debt, current portion 59,911  80,555 
Operating lease liabilities, current portion 70,731  76,077 
Other current liabilities 51,247  35,057 
Total current liabilities 753,266  789,433 
Deferred revenue, non-current portion 30,429  35,932 
Deferred income taxes 198,848  194,638 
Long-term debt, non-current portion 1,387,386  1,429,137 
Deferred compensation plan liabilities, non-current portion 44,923  47,405 
Operating lease liabilities, non-current portion 106,670  121,771 
Other liabilities 31,958  20,320 
Total liabilities 2,553,480  2,638,636 
Commitments and contingencies (Note 16)
Shareholders' equity:
Common stock, no par value; 100,000 shares authorized; 61,610 and 61,954 shares issued and outstanding as of March 31, 2022 and September 30, 2021, respectively (shares in thousands)
550,228  532,411 
Accumulated other comprehensive loss (26,098) (39,908)
Retained earnings 1,030,086  987,826 
Total shareholders' equity 1,554,216  1,480,329 
Total liabilities and shareholders' equity $ 4,107,696  $ 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 Six Months Ended
March 31, 2022 March 31, 2021
(in thousands)
Cash flows from operating activities:
Net income $ 103,426  $ 144,691 
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation and amortization of property, equipment and capitalized software 21,199  22,835 
Amortization of intangible assets 45,261  11,586 
Amortization of debt issuance costs and debt discount 1,297  — 
Deferred income taxes (3,318) 7,951 
Stock compensation expense 15,052  13,479 
Change in assets and liabilities, net of effects of business combinations:
Accounts receivable (49,064) 70,217 
Prepaid expenses and other current assets 9,769  8,074 
Deferred contract costs (6,431) (9,184)
Accounts payable and accrued liabilities (3,047) 12,395 
Accrued compensation and benefits (28,281) (16,761)
Deferred revenue 18,473  13,296 
Income taxes (13,515) 3,230 
Operating lease right-of-use assets and liabilities (1,293) (414)
Other assets and liabilities 2,331  (1,697)
Net cash provided by operating activities 111,859  279,698 
Cash flows from investing activities:
Purchases of property and equipment and capitalized software (22,898) (23,584)
Acquisitions of businesses, net of cash acquired (4) (413,940)
Net cash used in investing activities (22,902) (437,524)
Cash flows from financing activities:
Cash dividends paid to Maximus shareholders (34,659) (34,414)
Purchases of Maximus common stock (25,843) (3,363)
Tax withholding related to RSU vesting (9,673) (9,818)
Proceeds from borrowings 240,000  500,162 
Principal payments for debt (303,708) (263,838)
Other —  (2,762)
Net cash (used in)/provided by financing activities (133,883) 185,967 
Effect of exchange rate changes on cash, cash equivalents, and restricted cash 324  3,263 
Net change in cash, cash equivalents, and restricted cash (44,602) 31,404 
Cash, cash equivalents and restricted cash, beginning of period 156,570  88,561 
Cash, cash equivalents and restricted cash, end of period $ 111,968  $ 119,965 
See accompanying notes to unaudited consolidated financial statements.
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Maximus, Inc.
Consolidated Statements of Changes in Shareholders' Equity
(Unaudited)
Common Stock Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Total
Equity
Shares Amount
(in thousands)
Balance at September 30, 2021 61,954 $ 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, 2021 61,936 543,032  (36,764) 1,022,158  1,528,426 
Net income —  —  50,096  50,096 
Foreign currency translation —  (23) —  (23)
Cash flow hedge, net of tax —  10,689  —  10,689 
Cash dividends —  —  (17,312) (17,312)
Dividends on RSUs 392  —  (392) — 
Purchases of Maximus common stock (330) —  —  (24,464) (24,464)
Stock compensation expense 6,804  —  —  6,804 
RSUs vested 4 —  —  —  — 
Balance as of March 31, 2022 61,610 550,228 (26,098) 1,030,086 1,554,216
Common Stock Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Total
Equity
Shares Amount
(in thousands)
Balance at September 30, 2020 61,504 $ 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, 2020 61,452 $ 520,357  $ (35,715) $ 813,669  $ 1,298,311 
Net income —  —  80,614  80,614 
Foreign currency translation —  770  —  770 
Cash dividends —  —  (17,207) (17,207)
Dividends on RSUs 431  —  (431) — 
Stock compensation expense 7,417  —  —  7,417 
RSUs vested 20 —  —  —  — 
Balance as of March 31, 2021 61,472 $ 528,205  $ (34,945) $ 876,645  $ 1,369,905 
See accompanying notes to unaudited consolidated financial statements.
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Maximus, Inc.
Notes to the Unaudited Consolidated Financial Statements
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 People®, enabling citizens around the globe to successfully engage with their governments at all levels and 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.
2. SIGNIFICANT ACCOUNTING POLICIES
(a)Basis of Presentation
The accompanying 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, or U.S. GAAP, and the rules and regulations of the U.S. Securities and 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. We believe that the unaudited interim financial statements include all adjustments (which are normal and recurring in nature) necessary to present fairly our financial position and the results of operations and cash flows for the periods presented.
The results of operations for the interim periods presented are not necessarily indicative of results that may be expected for the year or future periods. The financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto for the year ended September 30, 2021 included in our Annual Report on Form 10-K for the fiscal year then ended (the "2021 10-K"). We have 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, 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 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.
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3. BUSINESS SEGMENTS
We conduct our operations through three 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, 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, the Children's Health Insurance Program ("CHIP"), Temporary Assistance to Needy Families ("TANF"), and child support programs. Addressing 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. This includes assessments to determine whether personal care services are medically necessary and public health offerings such as contact tracing, disease investigation, and vaccine distribution support services as part of the governments' COVID-19 response efforts.
U.S. Federal Services
From technology solutions to program administration and operations, our U.S. Federal Services Segment 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, system and application development, IT modernization, and maintenance 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 which 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 continues to expand its clinical solutions with the acquisition of VES Group, Inc., 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-19 response efforts. This included expanded work with the Centers for Disease Control and Prevention ("CDC") for their helpline and increased support for the IRS Wage and Investment Division's response efforts to general inquiries regarding the Coronavirus Aid Relief & Economic Security ("CARES") Act and Economic Impact Payment Service Plan.
Outside the U.S.
Our Outside the U.S. Segment provides BPS for international governments and commercial clients, 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 related services. We support programs and deliver services in the U.K., including the Health Assessment Advisory Service ("HAAS"), the Work & Health Programme, Fair Start, and 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
For the Three Months Ended For the Six Months Ended
March 31, 2022 March 31, 2021 March 31, 2022 March 31, 2021
Amount % (1) Amount % (1) Amount % (1) Amount % (1)
(dollars in thousands)
Revenue:
U.S. Services $ 398,077  $ 448,215  $ 784,494  $ 833,149 
U.S. Federal Services 573,288  330,136  1,155,159  735,381 
Outside the U.S. 205,961  180,929  388,549  336,304 
Revenue $ 1,177,326  $ 959,280  $ 2,328,202  $ 1,904,834 
Gross profit:
U.S. Services $ 84,971  21.3 % $ 119,440  26.6 % $ 174,670  22.3 % $ 218,442  26.2 %
U.S. Federal Services 115,153  20.1 % 74,133  22.5 % 241,729  20.9 % 156,629  21.3 %
Outside the U.S. 28,327  13.8 % 37,085  20.5 % 40,207  10.3 % 61,642  18.3 %
Gross profit $ 228,451  19.4 % $ 230,658  24.0 % $ 456,606  19.6 % $ 436,713  22.9 %
Selling, general, and administrative expenses:
U.S. Services $ 38,273  9.6 % $ 36,593  8.2 % $ 73,375  9.4 % $ 74,049  8.9 %
U.S. Federal Services 68,949  12.0 % 50,978  15.4 % 133,874  11.6 % 103,230  14.0 %
Outside the U.S. 24,011  11.7 % 22,013  12.2 % 45,351  11.7 % 42,045  12.5 %
Other (2) (926) NM 2,818  NM 1,928  NM 5,045  NM
Selling, general, and administrative expenses $ 130,307  11.1 % $ 112,402  11.7 % $ 254,528  10.9 % $ 224,369  11.8 %
Operating income/(loss):
U.S. Services $ 46,698  11.7 % $ 82,847  18.5 % $ 101,295  12.9 % $ 144,393  17.3 %
U.S. Federal Services 46,204  8.1 % 23,155  7.0 % 107,855  9.3 % 53,399  7.3 %
Outside the U.S. 4,316  2.1 % 15,072  8.3 % (5,144) (1.3) % 19,597  5.8 %
Amortization of intangible assets (22,856) NM (5,070) NM (45,261) NM (11,586) NM
Other (2) 926  NM (2,818) NM (1,928) NM (5,045) NM
Operating income/(loss) $ 75,288  6.4 % $ 113,186  11.8 % $ 156,817  6.7 % $ 200,758  10.5 %
(1)Percentage of respective segment revenue. Percentages not considered meaningful are marked "NM."
(2)Other selling, general, and administrative expenses includes 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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4. REVENUE RECOGNITION
The 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 customers that are substantially the same and which have the same pattern of service.
Disaggregation of Revenue
In addition to our segment reporting, we disaggregate our revenues by 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 3. Business Segments."
Table 4.1: Revenue by Contract Type
For the Three Months Ended For the Six Months Ended
March 31, 2022 March 31, 2021 March 31, 2022 March 31, 2021
Amount % Amount % Amount % Amount %
(dollars in thousands)
Performance-based $ 516,210  43.9 % $ 349,749  36.4 % $ 1,007,166  43.3 % $ 643,709  33.8 %
Cost-plus 322,823  27.4 % 286,082  29.8 % 662,904  28.5 % 670,565  35.2 %
Fixed price 158,867  13.5 % 146,344  15.3 % 310,372  13.3 % 267,121  14.0 %
Time and materials 179,426  15.2 % 177,105  18.5 % 347,760  14.9 % 323,439  17.0 %
Total revenue $ 1,177,326  $ 959,280  $ 2,328,202  $ 1,904,834 
Table 4.2: Revenue by Customer Type
For the Three Months Ended For the Six Months Ended
March 31, 2022 March 31, 2021 March 31, 2022 March 31, 2021
Amount % Amount % Amount % Amount %
(dollars in thousands)
U.S. state government agencies $ 411,287  35.0 % $ 445,697  46.5 % $ 782,834  33.7 % $ 833,811  43.8 %
U.S. federal government agencies 553,707  47.0 % 307,870  32.1 % 1,117,801  48.0 % 693,442  36.4 %
International government agencies 194,800  16.5 % 171,700  17.9 % 366,175  15.7 % 319,042  16.7 %
Other, including local municipalities and commercial customers 17,532  1.5 % 34,013  3.5 % 61,392  2.6 % 58,539  3.1 %
Total revenue $ 1,177,326  $ 959,280  $ 2,328,202  $ 1,904,834 
Table 4.3: Revenue by Geography
For the Three Months Ended For the Six Months Ended
March 31, 2022 March 31, 2021 March 31, 2022 March 31, 2021
Amount % Amount % Amount % Amount %
(dollars in thousands)
United States $ 971,365  82.5 % $ 778,350  81.1 % $ 1,939,653  83.3 % $ 1,568,529  82.3 %
United Kingdom 107,898  9.1 % 72,882  7.6 % 193,705  8.3 % 137,668  7.2 %
Australia 46,670  4.0 % 70,947  7.4 % 99,484  4.3 % 126,878  6.7 %
Rest of world 51,393  4.4 % 37,101  3.9 % 95,360  4.1 % 71,759  3.8 %
Total revenue $ 1,177,326  $ 959,280  $ 2,328,202  $ 1,904,834 

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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. These balances 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 are lifted. As of March 31, 2022, and September 30, 2021, $12.6 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" 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.
During the three and six months ended March 31, 2022, we recognized revenue of $20.6 million and $61.8 million, respectively, that was included in our deferred revenue balances as of September 30, 2021. During the three and six months ended March 31, 2021, we recognized revenue of $15.2 million and $29.1 million, respectively, that was 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 2. Significant Accounting Policies," 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 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 collection and recognize this estimated fee over the period of delivery. Changes to our estimates are recognized on a cumulative catch-up basis.
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Table 4.4: Effect of Changes in Contract Estimates
For the Three Months Ended For the Six Months Ended
March 31, 2022 March 31, 2021 March 31, 2022 March 31, 2021
(in thousands, except per share data)
Benefit to/(reduction of) revenue recognized due to changes in contract estimates $ (1,369) $ 7,603  $ (4,215) $ 15,986 
Benefit to/(reduction of) diluted earnings per share recognized due to changes in contract estimates $ (0.02) $ 0.09  $ (0.05) $ 0.19 
Remaining performance obligations
As of March 31, 2022, we had approximately $550 million of remaining performance obligations. We anticipate that we will recognize revenue on approximately 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.
5. EARNINGS PER SHARE
Table 5: Weighted Average Number of Shares - Earnings Per Share
For the Three Months Ended For the Six Months Ended
March 31, 2022 March 31, 2021 March 31, 2022 March 31, 2021
(in thousands)
Basic weighted average shares outstanding 62,227  62,026  62,256  62,022 
Dilutive effect of unvested RSUs and PSUs 154  268  153  190 
Denominator for diluted earnings per share 62,381  62,294  62,409  62,212 
Unvested anti-dilutive stock units excluded from the dilutive effect (stock units) 173 199 192 201

6. BUSINESS COMBINATIONS
VES Group, Inc. (VES)
On May 28, 2021, the Company acquired 100% of VES for an estimated cash purchase price of $1.37 billion (the "VES Acquisition"). The final purchase price is subject to adjustment and is expected to be finalized during 2022. VES was integrated into our U.S. Federal Services Segment. 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 March 31, 2022, we have completed our assessment of all acquired assets and liabilities assumed, with the exception of income taxes and the working capital true-up.
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Table 6.1: VES Valuation
Allocation of Assets and Liabilities as of September 30, 2021 Adjustments Estimated Allocation
of Assets
and Liabilities as of
March 31, 2022
(in thousands)
Consideration paid:
Cash consideration paid, net of cash acquired $ 1,360,231  $ —  $ 1,360,231 
Estimated additional cash payments 4,635  4,988  9,623 
Estimated cash consideration, net of cash acquired 1,364,866  4,988  1,369,854 
Assets acquired:
Accounts receivable - billed, billable and unbilled $ 44,078  $ —  $ 44,078 
Prepaid expenses and other current assets 7,955  —  7,955 
Property and equipment, net 9,113  (1,092) 8,021 
Operating lease right-of-use assets 18,898  —  18,898 
Intangible assets 664,000  —  664,000 
Other assets 7,166  —  7,166 
Total identifiable assets acquired 751,210  (1,092) 750,118 
Liabilities assumed:
Accounts payable and accrued compensation 42,182  (4,360) 37,822 
Operating lease liabilities 18,898  —  18,898 
Income taxes payable, current 5,673  —  5,673 
Deferred income taxes 171,497  1,147  172,644 
Other long-term liabilities 12,270  —  12,270 
Total identifiable liabilities assumed 250,520  (3,213) 247,307 
Net identifiable assets acquired 500,690  2,121  502,811 
Goodwill 864,176  2,867  867,043 
Net assets acquired $ 1,364,866  $ 4,988  $ 1,369,854 
Goodwill 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.
Our evaluation of the intangible assets acquired with VES identified three 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 U.S. 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.
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Table 6.2: VES Intangible Asset Values and Useful Lives
Estimated Straight-Line Useful Life Estimated Fair Value
(in thousands)
Customer contracts and relationships 12 years $ 580,000 
Provider network 12 years 57,000 
Technology-based intangible assets 12 years 27,000 
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 was partially offset by an indemnification asset of $6.0 million. Following the VES Acquisition, the liability was confirmed at $12.0 million and we have recovered our share of the indemnification asset. We expect to settle the liability in the third quarter of fiscal year 2022. In addition, we 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 September 14, 2021, we acquired 100% of the share capital of Connect Assist for an estimated purchase price of $21.1 million (£15.5 million British Pounds). We acquired this business to improve our contact center services and qualifications within the United Kingdom. The business was integrated into our Outside the U.S. Segment. We have completed a preliminary assessment of all acquired assets and liabilities assumed. We recorded estimated goodwill and intangible assets of $11.3 million and $7.7 million, respectively, related to the acquisition.
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 volumes, with a maximum payment of $65.0 million. The final payment is uncertain as there are a number of potential outcomes. We have estimated the fair value of this liability, based upon a probability weighted assessment of the potential outcomes, of $18.6 million. We will update this liability each quarter as changes are made to our estimate of fair value. These changes will be recorded through our statement of operations. If our obligation is less than anticipated, this will result in a benefit to our earnings. The obligation may be higher, either because the number of student loans we are servicing increases or if the contractual relationship we have acquired is extended beyond its current anticipated end date of December 31, 2023. In that instance, we would record an expense to earnings which we would anticipate being offset by additional benefits from the contract. However, the timing of the adjustment to the obligation and the anticipated financial benefits would be unlikely to be consistent. We recorded a single intangible asset related to the customer contract and relationship of $16.7 million, which we are amortizing over 27 months. The goodwill balance, representing the difference between the assets acquired and the estimated obligation, represents the assembled workforce, as well as the knowledge base acquired. 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.
During the three months ended March 31, 2022, we reported $47.0 million and $3.4 million of revenue and gross loss, respectively, from Aidvantage. During the six months ended March 31, 2022, we reported $81.7 million and $1.4 million of revenue and gross loss, respectively, from Aidvantage.
BZ Bodies Limited ("BZB")
On January 31, 2022, we acquired 100% of the share capital of BZB for an estimated purchase price of $2.9 million (£2.2 million British Pounds), which includes an estimate of contingent consideration payable upon future performance. BZB provides weight management services for adults, children and vulnerable groups in the United Kingdom. We acquired this business to complement our services within the United Kingdom. The business was integrated into our Outside the U.S. Segment. We recorded estimated goodwill and intangible assets of $1.5 million and $1.3 million, respectively, related to the acquisition. During the three and six months ended March 31, 2022, we reported $1.1 million and $0.6 million of revenue and gross profit, respectively, from BZB.
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7. DEBT
Table 7.1: Details of Debt
March 31, 2022 September 30, 2021
(in thousands)
Term Loan A, due 2026 $ 1,058,750  $ 1,086,250 
Term Loan B, due 2028 397,000  399,000 
Subsidiary loan agreements 3,971  38,281 
Total debt principal 1,459,721  1,523,531 
Less: Unamortized debt-issuance costs and discounts (12,424) (13,839)
Total debt 1,447,297  1,509,692 
Less: Current portion of long-term debt (59,911) (80,555)
Long-term debt $ 1,387,386  $ 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;
$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 Term 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 March 31, 2022, the net total leverage ratio was 2.4. If we can achieve a net total leverage ratio of less than 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 our only significant arrangement that utilizes LIBOR. As of March 31, 2022, the annual effective interest rate, including original issue discount and amortization of debt issuance costs, was 2.4%.
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 March 31, 2022, we had no outstanding balance on the Revolver.
Under the terms of the Credit Agreement, we are 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 less the lower of (a) unrestricted cash or (b) $75.0 million divided by adjusted earnings before interest, taxes, depreciation, and amortization ("EBITDA"). 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 EBITDA divided by interest expense, over the previous twelve months. The covenant requires a net interest coverage ratio of 3.0 or greater. As of March 31, 2022, as defined by the Credit Agreement, we calculated a net total leverage ratio of 2.4 and net interest coverage ratio of 15.3. We were in compliance with all applicable covenants under the Credit Agreement as of March 31, 2022, 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, Canada, 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)
April 1, 2022 through September 30, 2022 $ 32,963 
Year ended September 30, 2023 66,383 
Year ended September 30, 2024 86,500 
Year ended September 30, 2025 93,375 
Year ended September 30, 2026 801,500 
Thereafter 379,000 
Total payments $ 1,459,721 
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 reflected within Accumulated Other Comprehensive 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 recorded on this contract during the six months ended March 31, 2022.
Table 8.1: Details of Derivatives Fair Value
March 31, 2022 September 30, 2021
(in thousands)
Assets:
Interest rate swap $ 17,737  $ — 
Total assets $ 17,737  $ — 
Liabilities:
Interest rate swap $ —  $ 410 
Total liabilities $ —  $ 410 
Table 8.2: Gains on Derivatives
For the Three Months Ended For the Six Months Ended
March 31, 2022 March 31, 2021 March 31, 2022 March 31, 2021
(in thousands)
Net gains recognized in AOCI on derivatives, net of tax (1) $ 10,225  $ —  $ 12,401  $ — 
Amounts reclassified to earnings from accumulated other comprehensive loss (2) 464  —  973  — 
Net current period other comprehensive income $ 10,689  $ —  $ 13,374  $ — 
(1)Amount is net of tax expense of $3.7 million and $4.4 million for the three and six months ended March 31, 2022, respectively.
(2)Amount is net of tax benefit of $0.2 million and $0.3 million for the three and six months ended March 31, 2022, respectively.
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 March 31, 2022, there was no collateral posted with its counterparty related to the derivatives.
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9. FAIR VALUE
The Company had two assets recorded at fair value on a recurring basis as of March 31, 2022, 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 March 31, 2022, the Company had liabilities 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 our debt is consistent with 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).
Table 9: Fair Value
As of March 31, 2022
Level 1 Level 2 Level 3 Balance
(in thousands)
Assets:
Deferred compensation assets - Rabbi Trust $ 28,231  $ —  $ —  $ 28,231 
Interest rate swap —  17,737  —  17,737 
Total assets $ 28,231  $ 17,737  $ —  $ 45,968 
Liabilities:
Contingent consideration $ —  $ —  $ 21,340  $ 21,340 
Total liabilities $ —  $ —  $ 21,340  $ 21,340 
10. STOCK COMPENSATION
The Company grants restricted stock units ("RSUs") and performance stock units ("PSUs") to eligible participants under its 2021 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 six months ended March 31, 2022, we issued approximately 340,000 RSUs, which will vest ratably over three or four years, and approximately 87,000 PSUs, which will vest after three years.

11. ACCUMULATED OTHER COMPREHENSIVE INCOME
Table 11: Details of Changes in Accumulated Other Comprehensive Loss by Category
Foreign currency translation adjustment Net unrealized (loss)/gain on derivatives, net of tax Total
(in thousands)
Balance as of September 30, 2021 $ (39,605) $ (303) $ (39,908)
Other comprehensive income before reclassifications 436  12,401  12,837 
Amounts reclassified from accumulated other comprehensive loss —  973  973 
Net current period other comprehensive income 436  13,374  13,810 
Balance as of March 31, 2022 $ (39,169) $ 13,071  $ (26,098)
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12. STOCK PURCHASES
Under a resolution adopted in March 2020, the Board of Directors authorized the purchase, at management's discretion, of up to $200.0 million of our common stock. As of March 31, 2022, $120.8 million remained available for future stock purchases.
Table 12: Stock Purchase Activity
For the Three Months Ended For the Six Months Ended
March 31, 2022 March 31, 2021 March 31, 2022 March 31, 2021
(in thousands, except per share data)
Amount paid for shares repurchased $ 24,464  $ —  $ 25,843  $ 3,363 
Number of shares repurchased 330  —  348  52 
Average per share price paid $ 74.22  $ —  $ 74.26  $ 64.98 
Since March 31, 2022, we have acquired an additional 238,431 shares of our common stock for $17.7 million.
13. CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
Table 13.1: Details of Cash and Cash Equivalents and Restricted Cash
March 31, 2022 September 30, 2021
(in thousands)
Cash and cash equivalents $ 92,638  $ 135,061 
Restricted cash (1) 19,330  21,509 
Cash, cash equivalents, and restricted cash $ 111,968  $ 156,570 
(1)Restricted cash is recorded within "Prepaid expenses and other current assets" on the Consolidated Balance Sheets.
Table 13.2: Supplemental Disclosures of Cash Flow Information
For the Six Months Ended
March 31, 2022 March 31, 2021
(in thousands)
Interest payments $ 17,755  $ 783 
Income tax payments 50,531  42,495 
14. ACCOUNTS RECEIVABLE, NET
Table 14: Details of Accounts Receivable, Net
March 31, 2022 September 30, 2021
(in thousands)
Billed and billable receivables $ 742,713  $ 718,728 
Unbilled receivables 148,122  124,135 
Allowance for credit losses (5,150) (8,044)
Accounts receivable, net $ 885,685  $ 834,819 
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15. PROPERTY AND EQUIPMENT, NET
Table 15: Details of Property and Equipment, Net
March 31, 2022 September 30, 2021
(in thousands)
Land $ —  $ 1,738 
Building and improvements —  11,981 
Office furniture and equipment 247,100  254,102 
Leasehold improvements 88,236  79,938 
Property and equipment, at cost 335,336  347,759 
Accumulated depreciation (277,391) (285,132)
Property and equipment, net $ 57,945  $ 62,627 
As of March 31, 2022, we classified as held for sale one 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. As of March 31, 2022, we concluded the fair value less the costs to sell exceeds the carrying value of this asset.
16. 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 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) asserted two disallowances against a state Medicaid agency. The state contested the first disallowance and ultimately settled that claim for approximately $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 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 recorded 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.
17. SUBSEQUENT EVENT
On April 8, 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 May 31, 2022, to shareholders of record on May 13, 2022. Based upon the number of shares outstanding, we anticipate a cash payment of approximately $17.3 million.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion is intended to help the reader understand our business, financial condition, results of operations, liquidity and capital resources. You should read this discussion in conjunction with "Risk Factors," "Forward-Looking Statements," and our financial statements and related notes included in our Annual Report on Form 10-K for fiscal year 2021 filed with the Securities and Exchange Commission on November 18, 2021 (the "2021 Form 10-K") and elsewhere in this Quarterly Report on Form 10-Q, as applicable.
Business Overview
We are a leading operator of government health and human services programs worldwide. We are a responsible and reliable 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 to and use critical government programs. We use our experience, business process management expertise, innovation, and technology solutions to help government agencies run effective, efficient, and accountable programs.
Our primary portfolio of work is tied to business process services ("BPS") in the health services and human services markets. Our growth over the last decade was driven by new work, such as that from the Affordable Care Act ("ACA") in the U.S., an evolving digital transformation to meet the modernization needs of our clients, and growing demand for independent and conflict-free clinical services including assessments, appeals, and independent medical reviews in multiple geographies. Our growth has been supplemented by strategic acquisitions.
We experienced both favorable and unfavorable impacts as a result of the Coronavirus ("COVID-19") global pandemic. While some of the programs we support have experienced reduced volumes due to the pandemic, we have also been successful in winning new contracts to meet the immediate needs of our customers, including contract tracing and disease investigation, vaccine information lines, and unemployment insurance administration. Demonstrating the value of 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-19. As a result, we believe our operations support programs that are vital for their safety and wellbeing.
We continue to execute upon our three-fold strategy to accelerate our progress and drive the next phase of our growth through:
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 serve as a resource to governments as they respond to public health threats. These efforts include providing health information and COVID-19 testing access, test results, and vaccination information through our citizen engagement centers in key states and counties across the U.S.
Market expansion. We continue with our existing strategy to expand our markets by bringing our core capabilities to new programs and clients, adding new capabilities to access adjacent markets, and through geographic expansion. In fiscal year 2021, we expanded our clinical assessments and public health work, and completed two acquisitions in the U.S. to increase our digital and clinical capabilities, as well as create stronger relationships in key U.S. federal government agencies.
The macro-trends for our business remain 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 priorities increasingly face rising demand, shifting demographics, and unsustainable program costs. We believe that Maximus is well positioned to address these challenges and be a transformative partner through our scalable, cost-effective, and operationally efficient services for a wide range of government programs.
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Financial Overview
A number of factors have affected our results for the second 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 COVID-19 pandemic. We received the benefit from new, short-term work, assisting governments with their responses to the pandemic, which was often highly profitable. This mitigated the effect of declines in established programs where our transaction volume has been reduced. At this time, much of the short-term work has concluded, but our established programs are still at reduced capacity.
Results of Operations
Table MD&A 1: Consolidated Results of Operations
For the Three Months Ended For the Six Months Ended
March 31, 2022 March 31, 2021 March 31, 2022 March 31, 2021
(dollars in thousands, except per share data)
Revenue $ 1,177,326  $ 959,280  $ 2,328,202  $ 1,904,834 
Cost of revenue 948,875  728,622  1,871,596  1,468,121 
Gross profit 228,451  230,658  456,606  436,713 
Gross profit percentage 19.4  % 24.0  % 19.6 % 22.9 %
Selling, general, and administrative expenses 130,307  112,402  254,528  224,369 
Selling, general, and administrative expenses as a percentage of revenue 11.1  % 11.7  % 10.9 % 11.8 %
Amortization of intangible assets 22,856  5,070  45,261  11,586 
Operating income 75,288  113,186  156,817  200,758 
Operating income margin 6.4  % 11.8  % 6.7 % 10.5 %
Interest expense (9,438) (756) (19,076) (962)
Other expense, net 715  (520) 404  (1,295)
Income before income taxes 66,565  111,910  138,145  198,501 
Provision for income taxes 16,469  31,296  34,719  53,810 
Effective tax rate 24.7  % 28.0  % 25.1 % 27.1 %
Net income $ 50,096  $ 80,614  $ 103,426  $ 144,691 
Earnings per share:
Basic $ 0.81  $ 1.30  $ 1.66  $ 2.33 
Diluted $ 0.80  $ 1.29  $ 1.66  $ 2.33 

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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. Our revenue reflects fees earned for services provided. Cost of revenue consists of 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 March 31, 2022
Revenue Cost of Revenue Gross Profit
Dollars % Change Dollars % Change Dollars % Change
(dollars in thousands)
Three Months Ended March 31, 2021 $ 959,280  $ 728,622  $ 230,658 
Organic effect 4,084  0.4   % 58,853  8.1   % (54,769) (23.7)  %
Acquired growth 220,405  23.0   % 166,139  22.8   % 54,266  23.5   %
Currency effect compared to the prior period (6,443) (0.7)  % (4,739) (0.7)  % (1,704) (0.7)  %
Three Months Ended March 31, 2022 $ 1,177,326  22.7   % $ 948,875  30.2   % $ 228,451  (1.0)  %
Table MD&A 3: Changes in Revenue, Cost of Revenue, and Gross Profit for the Six Months Ended March 31, 2022
Revenue Cost of Revenue Gross Profit
Dollars % Change Dollars % Change Dollars % Change
(dollars in thousands)
Six Months Ended March 31, 2021 $ 1,904,834  $ 1,468,121  $ 436,713 
Organic effect (28,680) (1.5) % 69,706  4.7  % (98,386) (22.5) %
Acquired growth 456,171  23.9  % 336,317  22.9  % 119,854  27.4  %
Currency effect compared to the prior period (4,123) (0.2) % (2,548) (0.2) % (1,575) (0.4) %
Six Months Ended March 31, 2022 $ 2,328,202  22.2  % $ 1,871,596  27.5  % $ 456,606  4.6  %
Selling, general, and administrative 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 U.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 the additional cost base from our acquisitions. Our amortization of intangible assets increased by $17.8 million and $33.7 million for the three and six months ended March 31, 2022, compared to same periods ended March 31, 2021. The increase is a result of acquisitions during fiscal years 2021 and 2022. This increase is partially offset by the intangible asset amortization related to the Census Questionnaire Assistance (CQA) contract, which was fully amortized through November 2020.
Table MD&A 4: Changes in Amortization of Intangible Assets Expense for Three and Six Months Ended March 31, 2022
For the Three Months Ended March 31, 2022 For the Six Months Ended March 31, 2022
Dollars Dollars
(dollars in thousands)
Period Ending March 31, 2021 $ 5,070  $ 11,586 
VES acquisition 13,833  27,667 
Attain acquisition 1,750  4,375 
Aidvantage acquisition 2,060  3,716 
Connect Assist acquisition 151  313 
CQA contract —  (2,313)
Other (8) (83)
Period Ending March 31, 2022 $ 22,856  $ 45,261 
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Table MD&A 5: Non-GAAP Adjusted Results Excluding Amortization of Intangible Assets
For the Three Months Ended For the Six Months Ended
March 31, 2022 March 31, 2021 March 31, 2022 March 31, 2021
(dollars in thousands, except per share data)
Operating income $ 75,288  $ 113,186  $ 156,817  $ 200,758 
Add back: Amortization of intangible assets 22,856  5,070  45,261  11,586 
Adjusted operating income excluding amortization of intangible assets (Non-GAAP) $ 98,144  $ 118,256  $ 202,078  $ 212,344 
Adjusted operating income margin excluding amortization of intangible assets (Non-GAAP) 8.3  % 12.3  % 8.7  % 11.1  %
Net income $ 50,096  $ 80,614  $ 103,426  $ 144,691 
Add back: Amortization of intangible assets, net of tax 16,884  3,756  33,414  8,578 
Adjusted net income excluding amortization of intangible assets (Non-GAAP) $ 66,980  $ 84,370  $ 136,840  $ 153,269 
Diluted earnings per share $ 0.80  $ 1.29  $ 1.66  $ 2.33 
Add back: Effect of amortization of intangible assets on diluted earnings per share 0.27  0.06  0.53  0.13 
Adjusted diluted earnings per share excluding amortization of intangible assets (Non-GAAP) $ 1.07  $ 1.35  $ 2.19  $ 2.46 
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 the Customer Center Operations (CCO) contract which is subject to a rebid anticipated towards the end of this fiscal year. If this rebid is unsuccessful, the asset life of this asset may need to be reduced.
Interest expense for the three months ended March 31, 2022, increased by $8.7 million to $9.4 million, while interest expense for the six months ended March 31, 2022, increased by $18.1 million to $19.1 million. 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 $40 million to $42 million for fiscal year 2022 as the debt is expected to be outstanding for the entire fiscal year. Our interest rate will vary based upon both prevailing interest rates and our leverage ratio.
Our effective income tax rate for the three and six months ended March 31, 2022, was 24.7% and 25.1%, respectively, compared to 28.0% and 27.1% for the three and six months ended March 31, 2021. For fiscal year 2022, we expect the effective tax rate to be between 24.5% and 25.5%.
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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, 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, the Children's Health Insurance Program ("CHIP"), Temporary Assistance to Needy Families ("TANF"), and child support programs. Addressing 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. This includes assessments to determine whether personal care services are medically necessary and public health offerings such as contact tracing, disease investigation, and vaccine distribution support services as part of the governments' COVID-19 response efforts.
Table MD&A 6: U.S. Services Segment - Financial Results
For the Three Months Ended For the Six Months Ended
March 31, 2022 March 31, 2021 March 31, 2022 March 31, 2021
(dollars in thousands)
Revenue $ 398,077  $ 448,215  $ 784,494  $ 833,149 
Cost of revenue 313,106  328,775  609,824  614,707 
Gross profit 84,971  119,440  174,670  218,442 
Selling, general, and administrative expenses 38,273  36,593  73,375  74,049 
Operating income 46,698  82,847  101,295  144,393 
Gross profit percentage 21.3 % 26.6 % 22.3   % 26.2   %
Operating margin percentage 11.7 % 18.5 % 12.9   % 17.3   %
Our revenue and cost of revenue for the three months ended March 31, 2022, decreased 11.2% and 4.8%, compared to three months ended March 31, 2021, respectively. For the six months ended March 31, 2022, our revenue and cost of revenue decreased 5.8% and 0.8%, respectively. All movement was organic.
In fiscal year 2021, we received a large volume of short term COVID-19 related work, typically at higher margins. This work has contracted or moved into longer-term work, resulting in a reduced workload at lower margins. We estimate that our COVID related revenue has declined by approximately $120 million and $150 million for the three and six months ended March 31, 2022, respectively, compared to fiscal year 2021.
Our core established programs have been operating at depressed levels during the COVID-19 pandemic as the volume of transaction-based work has declined. In particular, we continue to report lower volumes of transactions on redetermination activities as states have paused Medicaid redeterminations. The Federal public health emergency declaration has been extended through mid-July which will further delay the commencement of redeterminations. Accordingly, we do not expect recoveries in these contracts until late in this fiscal year. For the full year, we anticipate an operating margin between 9% and 11%, with the timing of the end of the public health emergency being a significant factor in the return to higher margins.
U.S. Federal Services Segment
From technology solutions to program administration and operations, our U.S. Federal Services Segment 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, system and application development, IT modernization, and maintenance 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 which 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 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-19 response efforts. This included expanded work with the Centers for Disease Control and Prevention ("CDC") for their helpline and increased support for the IRS Wage and Investment Division's response efforts to general inquiries regarding the Coronavirus Aid Relief & Economic Security ("CARES") Act and Economic Impact Payment Service Plan.
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Table MD&A 7: U.S. Federal Services Segment - Financial Results
For the Three Months Ended For the Six Months Ended
March 31, 2022 March 31, 2021 March 31, 2022 March 31, 2021
(dollars in thousands)
Revenue $ 573,288  $ 330,136  $ 1,155,159  $ 735,381 
Cost of revenue 458,135  256,003  913,430  578,752 
Gross profit 115,153  74,133  241,729  156,629 
Selling, general, and administrative expenses 68,949  50,978  133,874  103,230 
Operating income 46,204  23,155  107,855  53,399 
Gross profit percentage 20.1   % 22.5   % 20.9   % 21.3   %
Operating margin percentage 8.1   % 7.0   % 9.3   % 7.3   %
Table MD&A 8: U.S. Federal Services Segment - Changes in Revenue, Cost of Revenue, and Gross Profit for the Three Months Ended March 31, 2022
Revenue Cost of Revenue Gross Profit
Amount % Change Amount % Change Amount % Change
(dollars in thousands)
Three Months Ended March 31, 2021 $ 330,136  $ 256,003  $ 74,133 
Organic effect 29,055  8.8   % 39,740  15.5   % (10,685) (14.4)  %
Acquired growth 214,097  64.9   % 162,392  63.4   % 51,705  69.7   %
Three Months Ended March 31, 2022 $ 573,288  73.7   % $ 458,135  79.0   % $ 115,153  55.3   %
Table MD&A 9: U.S. Federal Services Segment - Changes in Revenue, Cost of Revenue, and Gross Profit for the Six Months Ended March 31, 2022
Revenue Cost of Revenue Gross Profit
Amount % Change Amount % Change Amount % Change
(dollars in thousands)
Six Months Ended March 31, 2021 $ 735,381  $ 578,752  $ 156,629 
Organic effect (24,284) (3.3)  % 5,685  1.0   % (29,969) (19.1)  %
Acquired growth 444,062  60.4   % 328,993  56.8   % 115,069  73.5   %
Six Months Ended March 31, 2022 $ 1,155,159  57.1   % $ 913,430  57.8   % $ 241,729  54.3   %
We received significant acquired growth from:
VES, which we acquired in May 2021,
Attain, which we acquired in March 2021, and
The Aidvantage 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. These were partially tempered by our Aidvantage contract, which has recorded a loss in the three months ended March 31, 2022. The deferral of student loan repayments by the government has reduced our revenue and we have incurred costs related to the transition of the program.
Our organic work also tempered our gross profit margins. This was driven by a large contract on which we agreed to accept a lower margin in return for increased funding and anticipated future revenue. Our operating profit margins received a benefit from the increased scale of the segment.
We anticipate operating margins between 10% and 11% for the full year. At this time, we assume that student loan repayments will commence in September 2022, but any further delays will temper our revenue and profit.
Outside the U.S. Segment
Our Outside the U.S. Segment provides BPS for international governments and commercial clients, 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 related services. We support programs and deliver services in the U.K., including the Health Assessment
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Advisory Service ("HAAS"), the Work & Health Programme, Fair Start, and 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.
Table MD&A 10: Outside the U.S. Segment - Financial Results
For the Three Months Ended For the Six Months Ended
March 31, 2022 March 31, 2021 March 31, 2022 March 31, 2021
(dollars in thousands)
Revenue $ 205,961  $ 180,929  $ 388,549  $ 336,304 
Cost of revenue 177,634  143,844  348,342  274,662 
Gross profit 28,327  37,085  40,207  61,642 
Selling, general, and administrative expenses 24,011  22,013  45,351  42,045 
Operating income/(loss) 4,316  15,072  (5,144) 19,597 
Gross profit percentage 13.8   % 20.5   % 10.3   % 18.3   %
Operating margin percentage 2.1   % 8.3   % (1.3)  % 5.8   %
Table MD&A 11: Outside the U.S. Segment - Changes in Revenue, Cost of Revenue, and Gross Profit for the Three Months Ended March 31, 2022
Revenue Cost of Revenue Gross Profit
Amount % Change Amount % Change Amount % Change
(dollars in thousands)
Three Months Ended March 31, 2021 $ 180,929  $ 143,844  $ 37,085 
Organic effect 25,167  13.9   % 34,782  24.2   % (9,615) (25.9)  %
Acquired growth 6,308  3.5   % 3,747  2.6   % 2,561  6.9   %
Currency effect compared to the prior period (6,443) (3.6) % (4,739) (3.3) % (1,704) (4.6) %
Three Months Ended March 31, 2022 $ 205,961  13.8   % $ 177,634  23.5   % $ 28,327  (23.6)  %
Table MD&A 12: Outside the U.S. Segment - Changes in Revenue, Cost of Revenue, and Gross Profit for the Six Months Ended March 31, 2022
Revenue Cost of Revenue Gross Profit
Amount % Change Amount % Change Amount % Change
(dollars in thousands)
Six Months Ended March 31, 2021 $ 336,304  $ 274,662  $ 61,642 
Organic effect 44,259  13.2  % 68,904  25.1  % (24,645) (40.0) %
Acquired growth 12,109  3.6  % 7,324  2.7  % 4,785  7.8  %
Currency effect compared to the prior period $ (4,123) (1.2) % $ (2,548) (0.9) % (1,575) (2.6) %
Six Months Ended March 31, 2022 $ 388,549  15.5  % $ 348,342  26.8  % $ 40,207  (34.8) %
This segment experienced organic growth in revenue and costs, as well as acquired growth, during the three and six months ended March 31, 2022. These were mitigated by declines in the values of the currencies in which we operate against the U.S. Dollar.
Our results in fiscal year 2021 included a significant revenue benefit from the recovery of our welfare-to-work contracts in Australia. Fiscal year 2022 has also seen revenue and cost growth from our United Kingdom business, where the Restart contract continued to ramp up. Margins on the Restart contract are tempered as we have not yet reached our full service capacity.
Acquired growth is from the Connect Assist and BZB acquisitions.
A large employment services contract in Australia ends in June 2022 and we have been awarded a significantly lower caseload for the follow-on contract. This will