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 ~~December~~March 31, ~~2022~~2023

☐ 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)

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 ~~60,773,258~~60,783,621 shares of the registrant's Common Stock outstanding as of ~~February 6,~~May 1, 2023.

Table of Contents

Table of Contents to ~~First~~Second Quarter 2023 Form 10-Q


	SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS	3
Part I - Financial Information		4
Item 1.	Financial Statements	4
	Consolidated Statements of Operations	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Balance Sheets	6
	Consolidated Statements of Cash Flows	7
	Consolidated Statements of Changes in Shareholders’ Equity	8
	Notes to Consolidated Financial Statements	9
	1. Organization	9
	2. Significant Accounting Policies	9
	3. Business Segments	10
	4. Revenue Recognition	12
	5. Earnings Per Share	1314
	6. Debt and Derivatives	14
	7. Divestitures	15
	8 . Fair Value Measurements	15
	8.9. Equity	1617
	9.10 . Other Balance Sheet Items	17
	~~10.~~11. Commitments and Contingencies	18
	~~11.~~12. Subsequent Event	18
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19
	Business Overview	19
	Financial Overview	20
	Results of Operations	20
	Liquidity and Capital Resources	2425
	Critical Accounting Policies and Estimates	2528
	Non-GAAP and Other Measures	2628
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2830
Item 4.	Controls and Procedures	2830
Part II - Other Information		2931
Item 1.	Legal Proceedings	2931
Item 1A.	Risk Factors	2931
Item 2.	Unregistered Sales of Equity Securities	2931
Item 3.	Defaults Upon Senior Securities	2931
Item 4.	Mine Safety Disclosures	2931
Item 5.	Other Information	2931
Item 6.	Exhibits	2931
	Signatures	3032

Table of Contents

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," "continue," "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,~~demand, the ~~impact~~residual impacts of the coronavirus ("COVID-19") global pandemic, and ~~related policy implications,~~ ~~and~~ our recent ~~acquisitions,~~acquisitions, are forward-looking statements that are subject to 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 could lead to penalties, liquidated damages, actual damages, adverse settlement agreements, and/or contract termination;

•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 the COVID-19 pandemic, including the U.S. federal government's ongoing Public Health Emergency declaration;

•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~~businesses we disposed of or divested; and

•other factors set forth in Item 1A, "Risk Factors" of our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on November 22, 2022.

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.

Table of Contents

PART I - Financial Information

Item 1. Financial Statements

Maximus, Inc.

Consolidated Statements of Operations

(Unaudited)


		For the Three Months Ended					For the Three Months Ended				For the Six Months Ended
		December 31, 2022		December 31, 2021			March 31, 2023		March 31, 2022		March 31, 2023		March 31, 2022
		(in thousands, except per share amounts)					(in thousands, except per share amounts)
Revenue	Revenue	$	1,249,246	$	1,150,876	Revenue	$	1,206,852	$	1,177,326	$	2,456,098	$	2,328,202
Cost of revenue	Cost of revenue	1,004,499		922,721		Cost of revenue	978,249		948,875		1,982,748		1,871,596
Gross profit	Gross profit	244,747		228,155		Gross profit	228,603		228,451		473,350		456,606
Selling, general, and administrative expenses	Selling, general, and administrative expenses	146,452		124,221		Selling, general, and administrative expenses	142,448		130,307		288,900		254,528
Amortization of intangible assets	Amortization of intangible assets	23,518		22,405		Amortization of intangible assets	23,650		22,856		47,168		45,261
Operating income	Operating income	74,777		81,529		Operating income	62,505		75,288		137,282		156,817
Interest expense	Interest expense	21,606		9,638		Interest expense	20,999		9,438		42,605		19,076
Other income/(expense), net		266		(311)
Other income, net						Other income, net	818		715		1,084		404
Income before income taxes	Income before income taxes	53,437		71,580		Income before income taxes	42,324		66,565		95,761		138,145
Provision for income taxes	Provision for income taxes	13,442		18,250		Provision for income taxes	10,536		16,469		23,978		34,719
Net income	Net income	$	39,995	$	53,330	Net income	$	31,788	$	50,096	$	71,783	$	103,426

Earnings per share:	Earnings per share:					Earnings per share:
Basic	Basic	$	0.65	$	0.86	Basic	$	0.52	$	0.81	$	1.17	$	1.66
Diluted	Diluted	$	0.65	$	0.85	Diluted	$	0.52	$	0.80	$	1.17	$	1.66
Weighted average shares outstanding:	Weighted average shares outstanding:					Weighted average shares outstanding:
Basic	Basic	61,117		62,262		Basic	61,120		62,227		61,119		62,256
Diluted	Diluted	61,196		62,445		Diluted	61,383		62,381		61,265		62,409

Dividends declared per share	Dividends declared per share	$	0.28	$	0.28	Dividends declared per share	$	0.28	$	0.28	$	0.56	$	0.56

See accompanying notes to consolidated financial statements.

Table of Contents

Maximus, Inc.

Consolidated Statements of Comprehensive Income

(Unaudited)


		For the Three Months Ended					For the Three Months Ended				For the Six Months Ended
		December 31, 2022		December 31, 2021			March 31, 2023		March 31, 2022		March 31, 2023		March 31, 2022
		(in thousands)					(in thousands)
Net income	Net income	$	39,995	$	53,330	Net income	$	31,788	$	50,096	$	71,783	$	103,426
Other comprehensive income, net of tax:
Other comprehensive (loss)/income, net of tax:						Other comprehensive (loss)/income, net of tax:
Foreign currency translation adjustments	Foreign currency translation adjustments	8,036		459		Foreign currency translation adjustments	965		(23)		9,001		436
Net (losses)/gains on cash flow hedges, net of tax effect of $(1,349) and $957, respectively		(3,781)		2,685
Other comprehensive income		4,255		3,144
Net (losses)/gains on cash flow hedge, net of tax effect of $(1,630), $3,814, $(2,979), and $4,772, respectively						Net (losses)/gains on cash flow hedge, net of tax effect of $(1,630), $3,814, $(2,979), and $4,772, respectively	(4,562)		10,689		(8,343)		13,374
Other comprehensive (loss)/income						Other comprehensive (loss)/income	(3,597)		10,666		658		13,810
Comprehensive income	Comprehensive income	$	44,250	$	56,474	Comprehensive income	$	28,191	$	60,762	$	72,441	$	117,236

See accompanying notes to consolidated financial statements.

Table of Contents

Maximus, Inc.

Consolidated Balance Sheets


		December 31, 2022		September 30, 2022			March 31, 2023		September 30, 2022
		(unaudited)					(unaudited)
		(in thousands)					(in thousands)
Assets:	Assets:					Assets:
Cash and cash equivalents	Cash and cash equivalents	$	63,050	$	40,658	Cash and cash equivalents	$	56,344	$	40,658
Accounts receivable, net	Accounts receivable, net	1,014,046		807,110		Accounts receivable, net	742,387		807,110
Income taxes receivable	Income taxes receivable	4,486		2,158		Income taxes receivable	12,156		2,158
Prepaid expenses and other current assets	Prepaid expenses and other current assets	174,505		182,387		Prepaid expenses and other current assets	141,017		182,387
Total current assets	Total current assets	1,256,087		1,032,313		Total current assets	951,904		1,032,313
Property and equipment, net	Property and equipment, net	50,181		52,258		Property and equipment, net	46,915		52,258
Capitalized software, net	Capitalized software, net	64,963		58,740		Capitalized software, net	71,393		58,740
Operating lease right-of-use assets	Operating lease right-of-use assets	162,289		132,885		Operating lease right-of-use assets	162,633		132,885
Goodwill	Goodwill	1,783,239		1,779,415		Goodwill	1,780,200		1,779,415
Intangible assets, net	Intangible assets, net	782,821		804,904		Intangible assets, net	751,194		804,904
Deferred contract costs, net	Deferred contract costs, net	49,030		47,732		Deferred contract costs, net	47,498		47,732
Deferred compensation plan assets	Deferred compensation plan assets	39,606		37,050		Deferred compensation plan assets	42,049		37,050
Deferred income taxes	Deferred income taxes	5,038		4,970		Deferred income taxes	5,865		4,970
Other assets	Other assets	41,661		42,447		Other assets	39,205		42,447
Total assets	Total assets	$	4,234,915	$	3,992,714	Total assets	$	3,898,856	$	3,992,714
Liabilities and Shareholders' Equity:	Liabilities and Shareholders' Equity:					Liabilities and Shareholders' Equity:
Liabilities:	Liabilities:					Liabilities:
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	$	272,196	$	264,553	Accounts payable and accrued liabilities	$	259,463	$	264,553
Accrued compensation and benefits	Accrued compensation and benefits	118,505		178,199		Accrued compensation and benefits	156,990		178,199
Deferred revenue, current portion	Deferred revenue, current portion	96,201		87,146		Deferred revenue, current portion	66,796		87,146
Income taxes payable	Income taxes payable	12,422		718		Income taxes payable	4,482		718
Long-term debt, current portion	Long-term debt, current portion	77,479		63,458		Long-term debt, current portion	84,490		63,458
Operating lease liabilities, current portion	Operating lease liabilities, current portion	59,553		63,999		Operating lease liabilities, current portion	55,928		63,999
Other current liabilities	Other current liabilities	109,866		116,374		Other current liabilities	53,026		116,374
Total current liabilities	Total current liabilities	746,222		774,447		Total current liabilities	681,175		774,447
Deferred revenue, non-current portion	Deferred revenue, non-current portion	29,624		21,414		Deferred revenue, non-current portion	25,776		21,414
Deferred income taxes	Deferred income taxes	203,545		206,099		Deferred income taxes	201,079		206,099
Long-term debt, non-current portion	Long-term debt, non-current portion	1,486,975		1,292,483		Long-term debt, non-current portion	1,205,028		1,292,483
Deferred compensation plan liabilities, non-current portion	Deferred compensation plan liabilities, non-current portion	44,688		40,210		Deferred compensation plan liabilities, non-current portion	43,706		40,210
Operating lease liabilities, non-current portion	Operating lease liabilities, non-current portion	119,081		86,175		Operating lease liabilities, non-current portion	121,957		86,175
Other liabilities	Other liabilities	23,773		22,515		Other liabilities	18,413		22,515
Total liabilities	Total liabilities	2,653,908		2,443,343		Total liabilities	2,297,134		2,443,343
Commitments and contingencies (Note 10)
Commitments and contingencies (Note 11)						Commitments and contingencies (Note 11)
Shareholders' equity:	Shareholders' equity:					Shareholders' equity:
Common stock, no par value; 100,000 shares authorized; 60,774 shares issued and outstanding as of December 31, 2022 and September 30 2022, respectively (shares in thousands)		562,679		557,978
Common stock, no par value; 100,000 shares authorized; 60,784 and 60,774 shares issued and outstanding as of March 31, 2023, and September 30, 2022, respectively (shares in thousands)						Common stock, no par value; 100,000 shares authorized; 60,784 and 60,774 shares issued and outstanding as of March 31, 2023, and September 30, 2022, respectively (shares in thousands)	572,632		557,978
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(29,706)		(33,961)		Accumulated other comprehensive loss	(33,303)		(33,961)
Retained earnings	Retained earnings	1,048,034		1,025,354		Retained earnings	1,062,393		1,025,354
Total shareholders' equity	Total shareholders' equity	1,581,007		1,549,371		Total shareholders' equity	1,601,722		1,549,371
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	4,234,915	$	3,992,714	Total liabilities and shareholders' equity	$	3,898,856	$	3,992,714

See accompanying notes to consolidated financial statements.

Table of Contents

Maximus, Inc.

Consolidated Statements of Cash Flows

(Unaudited)


		For the Three Months Ended					For the Six Months Ended
		December 31, 2022		December 31, 2021			March 31, 2023		March 31, 2022
		(in thousands)					(in thousands)
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	39,995	$	53,330	Net income	$	71,783	$	103,426
Adjustments to reconcile net income to cash flows from operations:	Adjustments to reconcile net income to cash flows from operations:					Adjustments to reconcile net income to cash flows from operations:
Depreciation and amortization of property, equipment and capitalized software		12,280		11,365
Depreciation and amortization of property, equipment, and capitalized software						Depreciation and amortization of property, equipment, and capitalized software	26,321		21,199
Amortization of intangible assets	Amortization of intangible assets	23,518		22,405		Amortization of intangible assets	47,168		45,261
Amortization of debt issuance costs and debt discount	Amortization of debt issuance costs and debt discount	1,034		649		Amortization of debt issuance costs and debt discount	1,635		1,297

Deferred income taxes	Deferred income taxes	(1,331)		(229)		Deferred income taxes	(1,368)		(3,318)
Stock compensation expense	Stock compensation expense	4,403		8,248		Stock compensation expense	13,943		15,052

Change in assets and liabilities, net of effects of business combinations:
Loss on sale of businesses						Loss on sale of businesses	883		—
Change in assets and liabilities, net of effects of business combinations and disposals:						Change in assets and liabilities, net of effects of business combinations and disposals:
Accounts receivable	Accounts receivable	(200,749)		(14,114)		Accounts receivable	62,529		(49,064)
Prepaid expenses and other current assets	Prepaid expenses and other current assets	10,624		(5,115)		Prepaid expenses and other current assets	13,412		9,769
Deferred contract costs	Deferred contract costs	(1,013)		(6,811)		Deferred contract costs	583		(6,431)
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	3,642		(32,452)		Accounts payable and accrued liabilities	(6,361)		(3,047)
Accrued compensation and benefits	Accrued compensation and benefits	(53,271)		(56,305)		Accrued compensation and benefits	(14,222)		(28,281)
Deferred revenue	Deferred revenue	14,764		5,929		Deferred revenue	(18,347)		18,473
Income taxes	Income taxes	9,465		10,321		Income taxes	(6,578)		(13,515)
Operating lease right-of-use assets and liabilities	Operating lease right-of-use assets and liabilities	(948)		(6,370)		Operating lease right-of-use assets and liabilities	(2,072)		(1,293)

Other assets and liabilities	Other assets and liabilities	2,928		6,230		Other assets and liabilities	(14,272)		2,331
Net cash used in operating activities		(134,659)		(2,919)
Net cash provided by operating activities						Net cash provided by operating activities	175,037		111,859
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchases of property and equipment and capitalized software	Purchases of property and equipment and capitalized software	(15,697)		(6,327)		Purchases of property and equipment and capitalized software	(33,751)		(22,898)
Acquisitions of businesses, net of cash acquired						Acquisitions of businesses, net of cash acquired	—		(4)

Proceeds from sale of businesses						Proceeds from sale of businesses	9,124		—

Net cash used in investing activities	Net cash used in investing activities	(15,697)		(6,327)		Net cash used in investing activities	(24,627)		(22,902)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Cash dividends paid to Maximus shareholders	Cash dividends paid to Maximus shareholders	(17,017)		(17,347)		Cash dividends paid to Maximus shareholders	(34,033)		(34,659)
Purchases of Maximus common stock	Purchases of Maximus common stock	—		(1,379)		Purchases of Maximus common stock	—		(25,843)
Tax withholding related to RSU vesting	Tax withholding related to RSU vesting	(8,475)		(9,673)		Tax withholding related to RSU vesting	(8,475)		(9,673)
Payments for contingent consideration	Payments for contingent consideration	(1,415)		—		Payments for contingent consideration	(4,041)		—

Proceeds from borrowings	Proceeds from borrowings	268,702		100,000		Proceeds from borrowings	462,398		240,000
Principal payments for debt	Principal payments for debt	(61,355)		(16,685)		Principal payments for debt	(530,460)		(303,708)
Restricted cash movements	Restricted cash movements	(9,473)		—		Restricted cash movements	(57,060)		—
Net cash provided by financing activities		170,967		54,916
Net cash used in financing activities						Net cash used in financing activities	(171,671)		(133,883)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	Effect of exchange rate changes on cash, cash equivalents, and restricted cash	2,421		372		Effect of exchange rate changes on cash, cash equivalents, and restricted cash	3,186		324
Net change in cash, cash equivalents, and restricted cash	Net change in cash, cash equivalents, and restricted cash	23,032		46,042		Net change in cash, cash equivalents, and restricted cash	(18,075)		(44,602)
Cash, cash equivalents and restricted cash, beginning of period	Cash, cash equivalents and restricted cash, beginning of period	136,795		156,570		Cash, cash equivalents and restricted cash, beginning of period	136,795		156,570
Cash, cash equivalents and restricted cash, end of period	Cash, cash equivalents and restricted cash, end of period	$	159,827	$	202,612	Cash, cash equivalents and restricted cash, end of period	$	118,720	$	111,968

See accompanying notes to 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			Common Stock								Accumulated Other Comprehensive Loss		Retained Earnings		Total Equity
		Shares	Amount										Shares					Amount
		(in thousands)															(in thousands)
Balance at September 30, 2022	Balance at September 30, 2022	60,774	$	557,978			$	(33,961)			$	1,025,354					$	1,549,371		Balance at September 30, 2022	60,774			$		557,978	$	(33,961)	$	1,025,354	$	1,549,371
Net income	Net income	—	—		—				39,995					39,995		Net income	—					—			—		39,995		39,995
Foreign currency translation	Foreign currency translation	—	—		8,036				—					8,036		Foreign currency translation	—					—			8,036		—		8,036
Cash flow hedge, net of tax	Cash flow hedge, net of tax	—	—		(3,781)				—					(3,781)		Cash flow hedge, net of tax	—					—			(3,781)		—		(3,781)
Cash dividends	Cash dividends	—	—		—				(17,017)					(17,017)		Cash dividends	—					—			—		(17,017)		(17,017)
Dividends on RSUs	Dividends on RSUs	—	298		—				(298)					—		Dividends on RSUs	—					298			—		(298)		—

Stock compensation expense	Stock compensation expense	—	4,403		—				—					4,403		Stock compensation expense	—					4,403			—		—		4,403

Balance as of December 31, 2022	Balance as of December 31, 2022	60,774	$	562,679	$	(29,706)			$	1,048,034				$	1,581,007	Balance as of December 31, 2022	60,774					$	562,679		$	(29,706)	$	1,048,034	$	1,581,007

		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	Net income	—	—		—				53,330					53,330		Net income	—					—			—		31,788		31,788
Foreign currency translation	Foreign currency translation	—	—		459				—					459		Foreign currency translation	—					—			965		—		965
Cash flow hedge, net of tax	Cash flow hedge, net of tax	—	—		2,685				—					2,685		Cash flow hedge, net of tax	—					—			(4,562)		—		(4,562)
Cash dividends	Cash dividends	—	—		—				(17,347)					(17,347)		Cash dividends	—					—			—		(17,016)		(17,016)
Dividends on RSUs	Dividends on RSUs	—	272		—				(272)					—		Dividends on RSUs	—					413			—		(413)		—
Purchases of Maximus common stock		(18)	—		—				(1,379)					(1,379)

Stock compensation expense	Stock compensation expense	—	8,248		—				—					8,248		Stock compensation expense	—					9,540			—		—		9,540
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

RSUs vested																RSUs vested	10					—			—		—		—
Balance as of March 31, 2023																Balance as of March 31, 2023	60,784					$	572,632		$	(33,303)	$	1,062,393	$	1,601,722


	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

See accompanying notes to consolidated financial statements.

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Maximus, Inc.

Notes to the Consolidated Financial Statements

1. ORGANIZATION

Maximus, a Virginia corporation established in 1975, is a leading operator of government health and human services programs and provider of technology solutions to governments. Under our mission of Moving People Forward, we offer industry-leading expertise, including citizen engagement, eligibility and program integrity, independent clinical assessments, case management, and technology modernization services to enable citizens around the globe to successfully engage with their governments at all levels. We are a proud partner to government agencies in the United States, Australia, Canada, Italy, Saudi Arabia, Singapore, South Korea, ~~Sweden,~~ United Arab Emirates, and the United Kingdom.

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements, including the notes, include the accounts of the Company and its wholly-owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"), and the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). All intercompany balances and transactions have been eliminated in consolidation.

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, 2022 included in our Annual Report on Form 10-K for the fiscal year then ended (the "2022 10-K"). We have continued to follow the accounting policies set forth in those financial statements.

Use of 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.

In May 2021, we acquired VES Group, Inc. As part of the acquisition, we allocated a valuation of $27 million to certain technology assets used by the business, which we elected to amortize over twelve years, which was our best estimate of asset life at that time. In fiscal year 2023, we have taken the opportunity to improve our technology portfolio, including the development of technology, which will eventually replace much of the acquired technology. Accordingly, we have revised the asset life on the existing technology assuming the assets will cease being used by September 2026. This change in estimated useful life will result in additional annual amortization expense of $3.8 million per year. In the three and six months ended ~~December~~March 31, ~~2022,~~2023, this change reduced our diluted earnings per share by approximately ~~$0.01.~~$0.01 and $0.02, respectively.

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3. BUSINESS SEGMENTS

We conduct our operations through three business segments: U.S. Federal Services, U.S. Services, and Outside the U.S.

U.S. Federal Services

Our U.S. Federal Services Segment delivers end-to-end solutions that help various U.S. federal government agencies better deliver on their mission, including program operations and management, clinical services, and technology solutions. 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 which continues to be managed within this segment. Benefiting from the 2021 acquisition of the Attain Federal business, now managed as Technology Consulting Services, 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.

U.S. Services

Our U.S. Services Segment provides a variety of business process services ("BPS"), such as program administration, 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. As part of the government's COVID-19 response efforts, the segment supported contact tracing, disease investigation, and vaccine distribution support services during the peak of the pandemic. The segment also successfully expanded into the unemployment insurance market where longer term opportunities have materialized. As part of the broader strategy to evolve clinically and address societal macro trends such as aging populations and rising costs, the segment continues to expand its offerings in public health with new work in in-person assessments.

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") and Restart; Australia, including Workforce Australia and the Disability Employment Service; Canada, including the Employment Program of British Columbia; in addition to Italy, Saudi Arabia, Singapore, South Korea, ~~Sweden,~~ and UAE where we predominantly provide employment support and job seeker services.

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Table 3.1: Results of Operation by Business Segment
Table 3: Results of Operation by Business Segment										Table 3: Results of Operation by Business Segment
		For the Three Months Ended									For the Three Months Ended								For the Six Months Ended
		December 31, 2022				December 31, 2021					March 31, 2023				March 31, 2022				March 31, 2023				March 31, 2022
		Amount		% (1)		Amount		% (1)			Amount		% (1)		Amount		% (1)		Amount		% (1)		Amount		% (1)
		(dollars in thousands)									(dollars in thousands)
Revenue:	Revenue:									Revenue:
U.S. Federal Services	U.S. Federal Services	$	618,167			$	581,871			U.S. Federal Services	$	584,075			$	573,288			$	1,202,242			$	1,155,159
U.S. Services	U.S. Services	439,478				386,417				U.S. Services	449,703				398,077				889,181				784,494
Outside the U.S.	Outside the U.S.	191,601				182,588				Outside the U.S.	173,074				205,961				364,675				388,549
Revenue	Revenue	$	1,249,246			$	1,150,876			Revenue	$	1,206,852			$	1,177,326			$	2,456,098			$	2,328,202
Gross profit:	Gross profit:									Gross profit:
U.S. Federal Services	U.S. Federal Services	$	122,694	19.8	%	$	126,576	21.8	%	U.S. Federal Services	$	122,874	21.0	%	$	115,153	20.1	%	$	245,568	20.4	%	$	241,729	20.9	%
U.S. Services	U.S. Services	83,598		19.0	%	89,699		23.2	%	U.S. Services	86,016		19.1	%	84,971		21.3	%	169,614		19.1	%	174,670		22.3	%
Outside the U.S.	Outside the U.S.	38,455		20.1	%	11,880		6.5	%	Outside the U.S.	19,713		11.4	%	28,327		13.8	%	58,168		16.0	%	40,207		10.3	%
Gross profit	Gross profit	$	244,747	19.6	%	$	228,155	19.8	%	Gross profit	$	228,603	18.9	%	$	228,451	19.4	%	$	473,350	19.3	%	$	456,606	19.6	%
Selling, general, and administrative expenses:	Selling, general, and administrative expenses:									Selling, general, and administrative expenses:
U.S. Federal Services	U.S. Federal Services	$	71,649	11.6	%	$	64,925	11.2	%	U.S. Federal Services	$	75,050	12.8	%	$	68,949	12.0	%	$	146,699	12.2	%	$	133,874	11.6	%
U.S. Services	U.S. Services	45,842		10.4	%	35,102		9.1	%	U.S. Services	43,415		9.7	%	38,273		9.6	%	89,257		10.0	%	73,375		9.4	%
Outside the U.S.	Outside the U.S.	28,389		14.8	%	21,340		11.7	%	Outside the U.S.	23,425		13.5	%	24,011		11.7	%	51,814		14.2	%	45,351		11.7	%
Other (2)		572		NM		2,854		NM
Loss on sale of businesses (2)										Loss on sale of businesses (2)	883		NM		—		NM		883		NM		—		NM
Other (3)										Other (3)	(325)		NM		(926)		NM		247		NM		1,928		NM
Selling, general, and administrative expenses	Selling, general, and administrative expenses	$	146,452	11.7	%	$	124,221	10.8	%	Selling, general, and administrative expenses	$	142,448	11.8	%	$	130,307	11.1	%	$	288,900	11.8	%	$	254,528	10.9	%
Operating income:
Operating income/(loss):										Operating income/(loss):
U.S. Federal Services	U.S. Federal Services	$	51,045	8.3	%	$	61,651	10.6	%	U.S. Federal Services	$	47,824	8.2	%	$	46,204	8.1	%	$	98,869	8.2	%	$	107,855	9.3	%
U.S. Services	U.S. Services	37,756		8.6	%	54,597		14.1	%	U.S. Services	42,601		9.5	%	46,698		11.7	%	80,357		9.0	%	101,295		12.9	%
Outside the U.S.	Outside the U.S.	10,066		5.3	%	(9,460)		(5.2)	%	Outside the U.S.	(3,712)		(2.1)	%	4,316		2.1	%	6,354		1.7	%	(5,144)		(1.3)	%
Amortization of intangible assets	Amortization of intangible assets	(23,518)		NM		(22,405)		NM		Amortization of intangible assets	(23,650)		NM		(22,856)		NM		(47,168)		NM		(45,261)		NM
Other (2)		(572)		NM		(2,854)		NM
Loss on sale of businesses (2)										Loss on sale of businesses (2)	(883)		NM		—		NM		(883)		NM		—		NM
Other (3)										Other (3)	325		NM		926		NM		(247)		NM		(1,928)		NM
Operating income	Operating income	$	74,777	6.0	%	$	81,529	7.1	%	Operating income	$	62,505	5.2	%	$	75,288	6.4	%	$	137,282	5.6	%	$	156,817	6.7	%

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

(2)During the second quarter of fiscal year 2023, we sold a small commercial practice in the United Kingdom and our employment operations business in Sweden, both subsidiaries within our Outside the U.S. Segment, resulting in a loss. Refer to "Note 7. Divestitures" for more details.

(3)Other ~~expenses~~ includes credits and costs that are not allocated to a particular segment. ~~This includes expenses incurred as part of our acquisitions, as well as potential acquisitions which have not been or may not be completed.~~

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4. REVENUE RECOGNITION

We recognize revenue as, or when, we satisfy performance obligations under a contract. The majority of our contracts have performance obligations that 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. 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 contract type and customer type. 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	Table 4.1: Revenue by Contract Type									Table 4.1: Revenue by Contract Type
		For the Three Months Ended									For the Three Months Ended								For the Six Months Ended
		December 31, 2022				December 31, 2021					March 31, 2023				March 31, 2022				March 31, 2023				March 31, 2022
		(dollars in thousands)									(dollars in thousands)
Performance-based	Performance-based	$	569,217	45.6	%	$	490,956	42.7	%	Performance-based	$	574,747	47.6	%	$	516,210	43.9	%	$	1,143,964	46.6	%	$	1,007,166	43.3	%
Cost-plus	Cost-plus	347,319		27.8	%	340,081		29.5	%	Cost-plus	312,176		25.9	%	322,823		27.4	%	659,495		26.9	%	662,904		28.5	%
Fixed price	Fixed price	175,073		14.0	%	151,505		13.2	%	Fixed price	180,674		15.0	%	158,867		13.5	%	355,747		14.5	%	310,372		13.3	%
Time and materials	Time and materials	157,637		12.6	%	168,334		14.6	%	Time and materials	139,255		11.5	%	179,426		15.2	%	296,892		12.1	%	347,760		14.9	%
Total revenue	Total revenue	$	1,249,246			$	1,150,876			Total revenue	$	1,206,852			$	1,177,326			$	2,456,098			$	2,328,202


Table 4.2: Revenue by Customer Type	Table 4.2: Revenue by Customer Type									Table 4.2: Revenue by Customer Type
		For the Three Months Ended									For the Three Months Ended								For the Six Months Ended
		December 31, 2022				December 31, 2021					March 31, 2023				March 31, 2022				March 31, 2023				March 31, 2022
		(dollars in thousands)									(dollars in thousands)
U. S. federal government agencies		$	603,918	48.3	%	$	564,094	49.0	%
U.S. federal government agencies										U.S. federal government agencies	$	569,897	47.2	%	$	553,707	47.0	%	$	1,173,815	47.8	%	$	1,117,801	48.0	%
U.S. state government agencies	U.S. state government agencies	437,362		35.0	%	371,547		32.3	%	U.S. state government agencies	446,549		37.0	%	411,287		34.9	%	883,911		36.0	%	782,834		33.7	%
International government agencies	International government agencies	181,760		14.5	%	171,375		14.9	%	International government agencies	161,359		13.4	%	194,800		16.5	%	343,119		14.0	%	366,175		15.7	%
Other, including local municipalities and commercial customers	Other, including local municipalities and commercial customers	26,206		2.1	%	43,860		3.8	%	Other, including local municipalities and commercial customers	29,047		2.4	%	17,532		1.5	%	55,253		2.2	%	61,392		2.6	%
Total revenue	Total revenue	$	1,249,246			$	1,150,876			Total revenue	$	1,206,852			$	1,177,326			$	2,456,098			$	2,328,202

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 and such balances are considered collectible and are included within accounts receivable, net.

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.

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•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 ~~December~~March 31, ~~2022~~2023 and September 30, 2022, ~~$19.0~~$11.7 million and $13.1 million, respectively, of our unbilled receivables related to amounts pursuant to contractual retainage provisions.

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•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 that 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 ~~December~~March 31, ~~2022,~~2023, we recognized revenue of ~~$51.1~~$34.8 million and $85.9 million, respectively, included in our deferred revenue balances at September 30, 2022. During the three and six months ended ~~December~~March 31, ~~2021,~~2022, we recognized revenue of ~~$41.2~~$20.6 million and $61.8 million, respectively, included in our deferred revenue balances at September 30, 2021.

Contract estimates

We are required to use estimates in recognizing revenue from some of our contracts.

~~Some~~Some of our performance-based contract revenue is recognized based upon future ~~outcomes~~milestones 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,~~milestones, 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 within a portfolio reaching employment milestones and the ~~length~~service delivery periods for participants reaching the employment milestone. We estimate the total variable fees we will receive using the expected value method. We recognize the fees over the expected period of performance. At each reporting period, we update our estimates of the ~~contract, and~~variable fees to represent the ~~participants reaching employment milestones.~~circumstances present at the end of the reporting period. We are required to ~~estimate~~constrain our estimates to the extent that it is probable that there will not be a significant reversal of cumulative revenue when the uncertainty is resolved. We do not have a history of significant constraints on these ~~outcome fees ahead of their collection and recognize this estimated fee over the period of delivery.~~contracts.

Changes to our estimates are recognized on a cumulative catch-up basis. For the three and six months ended ~~December~~March 31, ~~2022, there was no material effect on~~2023, we reported a reduction in revenue orand diluted earnings per share of $6.5 million and $0.08 and $6.1 million and $0.07, respectively from changes in estimates. The corresponding change for the three and six months ended ~~December~~March 31, ~~2021~~2022 was a reduction to revenue and diluted earnings per share of ~~$4.7~~$1.4 million and $0.02 and $4.2 million and $0.05, respectively.

Remaining performance obligations

As of ~~December~~March 31, ~~2022,~~2023, we had approximately ~~$425~~$400 million of remaining performance obligations. We anticipate that we will recognize revenue on approximately 60% of this balance within the next 12 months. This balance excludes contracts with an original duration of twelve months or less, including contracts with a penalty-free termination for convenience clause, and any variable consideration which is allocated entirely to future performance obligations, including variable transaction fees or fees tied directly to costs incurred.

~~5. EARNINGS PER SHARE~~

Table 5: Weighted Average Number of Shares - Earnings Per Share
For the Three Months Ended
December 31, 2022 December 31, 2021
(in thousands)
Basic weighted average shares outstanding 61,117 62,262
Dilutive effect of unvested RSUs and PSUs 79 183
Denominator for diluted earnings per share 61,196 62,445

The diluted earnings per share calculation for the three months ended December 31, 2022 and 2021 excludes approximately 804,000 and 135,000 unvested anti-dilutive restricted stock units, respectively.

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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, 2023	March 31, 2022	March 31, 2023	March 31, 2022
	(in thousands)
Basic weighted average shares outstanding	61,120	62,227	61,119	62,256
Dilutive effect of unvested RSUs and PSUs	263	154	146	153
Denominator for diluted earnings per share	61,383	62,381	61,265	62,409

The diluted earnings per share calculation for the three and six months ended March 31, 2023 excludes approximately 99,000 and 300,000 unvested anti-dilutive restricted stock units, respectively. For the three and six months ended March 31, 2022, approximately 173,000 and 192,000 unvested anti-dilutive restricted stock units were excluded from the diluted earnings per share calculation, respectively.

6. DEBT AND DERIVATIVES


Table 6.1: Details of Debt	Table 6.1: Details of Debt					Table 6.1: Details of Debt
		December 31, 2022		September 30, 2022			March 31, 2023		September 30, 2022
		(in thousands)					(in thousands)
Term Loan A, due 2026	Term Loan A, due 2026	$	957,500	$	971,250	Term Loan A, due 2026	$	943,750	$	971,250
Term Loan B, due 2028	Term Loan B, due 2028	347,592		395,000		Term Loan B, due 2028	346,721		395,000
Revolver		261,566		—

Subsidiary loan agreements	Subsidiary loan agreements	7,135		64		Subsidiary loan agreements	7,785		64
Total debt principal		1,573,793		1,366,314
Funded Debt						Funded Debt	1,298,256		1,366,314
Less: Unamortized debt-issuance costs and discounts	Less: Unamortized debt-issuance costs and discounts	(9,339)		(10,373)		Less: Unamortized debt-issuance costs and discounts	(8,738)		(10,373)
Total debt	Total debt	1,564,454		1,355,941		Total debt	1,289,518		1,355,941
Less: Current portion of long-term debt	Less: Current portion of long-term debt	(77,479)		(63,458)		Less: Current portion of long-term debt	(84,490)		(63,458)
Long-term debt	Long-term debt	$	1,486,975	$	1,292,483	Long-term debt	$	1,205,028	$	1,292,483

We entered into a credit agreement with JPMorgan Chase Bank, N.A. in May 2021 comprised of Term Loan A, Term Loan B, and a $600.0 million revolving credit facility ("Revolver"). During the first quarter of fiscal year 2023, we converted our interest rate index from the London Interbank Overnight Rate ("LIBOR") to the Secured Overnight Financing Rate ("SOFR").

The Credit Agreement requires us to comply with a number of covenants, including leverage and interest coverage ratios. At ~~December~~March 31, ~~2022,~~2023, we are in compliance with all covenants. We do not believe that the covenants represent a significant restriction on our ability to successfully operate the business or to pay dividends.

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 funds to meet any short-term working capital needs.

The following table sets forth future minimum principal payments due under our debt obligations as of ~~December~~March 31, ~~2022~~2023 for the remainder of fiscal year 2023 through fiscal year 2027 and thereafter:


Table 6.2: Details of Future Minimum Principal Payments Due
	Amount Due
	(in thousands)
~~January~~April 1, 2023 through September 30, 2023	$	~~57,873~~43,900
Year ended September 30, 2024	85,985
Year ended September 30, 2025	92,860
Year ended September 30, 2026	~~1,002,551~~740,985
Year ended September 30, 2027	3,485
Thereafter	~~331,039~~331,041
Total Payments	$	~~1,573,793~~1,298,256

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Interest Rate Derivative Instruments

To reduce our interest rate ~~credit~~ risk, we entered into interest-rate swap agreements covering ~~$500 million of~~ our Term Loan A, effectively setting a fixed rate for a portion of our debt. At March 31, 2023, we have arrangements in place that fix our interest rate of $500 million through May 2026 and a further arrangement to fix $150 million through September 2024. The balance of the debt pays interest based upon an index. The floating interest rate on these instruments was converted from LIBOR to SOFR in December 2022, concurrent with our debt agreements. In converting our debt and interest-rate swaps, we utilized the practical expedients allowed under ASU No. 2020-04 Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which allowed us to treat these amendments as though the modification was not substantial. At ~~December~~March 31, ~~2022,~~2023, our effective interest rate, including the original issuance costs and discount rate, was ~~6.0%~~5.9%.

Our interest-rate swap agreements ~~expire in May 2026, concurrently with the Term Loan A maturity.~~are valued quarterly and recorded on our balance sheet. As of ~~December~~March 31, ~~2022,~~2023, we had an asset of ~~$29.0~~$24.6 million and a liability of ~~$2.7~~$4.5 million, compared to an asset of $31.4 million as of September 30, 2022. These balances were recorded in "other assets" and "other liabilities", respectively, on our consolidated balance sheet. As these hedges are considered effective, all gains and losses are reported within ~~accumulated~~ other comprehensive income on our consolidated statement of comprehensive income.

7. DIVESTITURES

14On March 6, 2023, we sold a small commercial practice in the United Kingdom, part of our Outside the U.S. Segment, resulting in a pre-tax loss of $0.6 million. The cash consideration will be received in installments, with a fair value of $16.0 million. The installment payments are unconditional.

On March 30, 2023, we sold our Swedish subsidiary for cash consideration of $0.4 million, resulting in a small loss.

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7.8. FAIR VALUE MEASUREMENTS

The following assets and liabilities are recorded at fair value on a recurring basis.

•We hold mutual fund assets within a Rabbi Trust to cover liabilities in our deferred compensation plan. These assets have prices quoted within active markets and, accordingly, are classified as level 1 within the fair value hierarchy.

•We have ~~two~~three interest rate swap agreements, serving to reduce our interest rate risk on our debt. These assets and liabilities can be valued using observable data and, accordingly, are classified as level 2 within the fair value hierarchy.

•We anticipate paying additional consideration for certain acquisitions based upon the subsequent performance of the businesses acquired. This liability is based upon our internal assumptions over revenues, margins, volumes, and contract terms. Accordingly, these inputs are not observable and are classified as level 3 within the fair value hierarchy.

•We will receive payments from the sale of a small commercial practice in the United Kingdom over the next three years. We have discounted the asset based upon our cost of capital, which is not an observable input. The balance at the sale of the business was $6.8 million. These assets are held in "Prepaid expenses and other current assets" and "Other assets" on our consolidated balance sheet.

The tables below present assets and liabilities measured and recorded at fair value in our consolidated balance sheets on a recurring basis and their corresponding level within the fair value hierarchy. No transfers between Level 1, Level 2, and Level 3 fair value measurements occurred for the three months ended ~~December~~March 31, ~~2022.~~2023.

Table 7.1: Fair Value Measurements
As of December 31, 2022
Level 1 Level 2 Level 3 Balance
(in thousands)
Assets:
Deferred compensation assets - Rabbi Trust $ 24,316 $ — $ — $ 24,316
Interest rate swap - $300 million notional value — 29,012 — 29,012
Total assets $ 24,316 $ 29,012 $ — $ 53,328
Liabilities:
Interest rate swap - $200 million notional value $ — $ 2,733 $ — $ 2,733
Contingent consideration — — 16,439 16,439
Total liabilities $ — $ 2,733 $ 16,439 $ 19,172

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Table 8.1: Fair Value Measurements
	As of March 31, 2023
	Level 1		Level 2		Level 3		Balance
	(in thousands)
Assets:
Deferred compensation assets - Rabbi Trust	$	25,820	$	—	$	—	$	25,820
Interest rate swap - $300 million notional value	—		24,636		—		24,636
Notes receivable	—		—		7,055		7,055
Total assets	$	25,820	$	24,636	$	7,055	$	57,511
Liabilities:
Interest rate swaps - $350 million notional value	$	—	$	4,548	$	—	$	4,548
Contingent consideration	—		—		13,654		13,654
Total liabilities	$	—	$	4,548	$	13,654	$	18,202

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).

Accumulated Other Comprehensive ~~Income~~Loss

All amounts recorded in accumulated other comprehensive loss are related to our foreign currency translations and interest rate swap, net of tax. The following table shows changes in accumulated other comprehensive loss:

Table 7.2: Details of Changes in Accumulated Other Comprehensive Loss by Category
Foreign currency translation adjustment Net unrealized gain on derivatives, net of tax Total
(in thousands)
Balance as of September 30, 2022 $ (57,109) $ 23,148 $ (33,961)
Other comprehensive income before reclassifications 8,036 (2,467) 5,569
Amounts reclassified from accumulated other comprehensive loss — (1,314) (1,314)
Net current period other comprehensive losses 8,036 (3,781) 4,255
Balance as of December 31, 2022 $ (49,073) $ 19,367 $ (29,706)

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Table 8.2: Details of Changes in Accumulated Other Comprehensive Loss by Category
	Foreign currency translation adjustment		Net unrealized gain on derivatives, net of tax		Total
	(in thousands)
Balance as of September 30, 2022	$	(57,109)	$	23,148	$	(33,961)
Other comprehensive income before reclassifications	8,885		(5,012)		3,873
Amounts reclassified from accumulated other comprehensive loss	116		(3,331)		(3,215)
Net current period other comprehensive losses	9,001		(8,343)		658
Balance as of March 31, 2023	$	(48,108)	$	14,805	$	(33,303)

Contingent Consideration

The fair value of our contingent considerations are based upon estimates of the likely payments, which are based upon assumptions over future performance. The liabilities are reviewed on a quarterly basis and, where changes in estimates arise, these are recorded to selling and general administrative expenses.

Our contingent consideration relates to the businesses below:

•In October 2021, we acquired the student loan servicing business from Navient, rebranded as Aidvantage. Future payments are based upon volumes, up to a maximum payment of $65.0 million. At ~~December~~March 31, ~~2022~~2023 and September 30, 2022, the Aidvantage contingent consideration was ~~$14.0~~$11.2 million and $13.8 million, respectively.

•In January 2022, we acquired BZ Bodies Limited. Future payments are based upon the performance of the business through December 2023, up to a maximum payment of ~~$2.4~~$2.5 million (£2.0 million British Pounds). At ~~December~~March 31, ~~2022~~2023 and September 30, 2022, we recorded a contingent consideration liability for the maximum payment, which we anticipate making in fiscal year 2024.

•In December 2015, we acquired companies doing business as Assessments Australia. Future payments were based upon future revenue earnings. The deadline for the payment expired on December 31, 2022, with no payment being required.

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Movement in our contingent consideration balance is as follows:


Table ~~7.3:~~8.3: Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
	Contingent Consideration
	(in thousands)
Opening contingent consideration as of September 30, 2022	$	16,236
Adjustments to fair value recorded in the period	~~1,414~~1,202
Cash payments	~~(1,415)~~(4,041)
Foreign currency translations	~~204~~257
Closing contingent consideration as of ~~December~~March 31, ~~2022~~2023	$	~~16,439~~13,654

8.9. EQUITY

Stock Compensation

We grant restricted stock units ("RSUs") and performance stock units ("PSUs") to eligible participants under our 2021 Omnibus Incentive Plan, which was approved by the Board of Directors and stockholders. The RSUs granted to employees vest ratably over three to five years and one year for members of the board of directors, in each case from the grant date. PSU vesting is subject to the achievement of certain performance and market conditions and the number of PSUs earned could vary from 0% to 200% of the number of PSUs awarded. The PSUs will vest at the end of a three year-performance period. We issue new shares to satisfy our obligations under these plans. The fair value of each RSU and PSU is calculated at the date of the grant.

During the ~~three~~six months ended ~~December~~March 31, ~~2022,~~2023, we issued approximately ~~308,000~~333,000 RSUs, which will vest ratably over three to four years, and approximately 137,000 PSUs, which will vest after three years.

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9.10. OTHER BALANCE SHEET ITEMS

Cash, Cash Equivalents, and Restricted Cash


Table 9.1: Details of Cash and Cash Equivalents and Restricted Cash
Table 10.1: Details of Cash and Cash Equivalents and Restricted Cash						Table 10.1: Details of Cash and Cash Equivalents and Restricted Cash
		December 31, 2022		September 30, 2022			March 31, 2023		September 30, 2022
		(in thousands)					(in thousands)
Cash and cash equivalents	Cash and cash equivalents	$	63,050	$	40,658	Cash and cash equivalents	$	56,344	$	40,658
Restricted cash (1)	Restricted cash (1)	96,777		96,137		Restricted cash (1)	62,376		96,137
Cash, cash equivalents, and restricted cash	Cash, cash equivalents, and restricted cash	$	159,827	$	136,795	Cash, cash equivalents, and restricted cash	$	118,720	$	136,795

(1)Restricted cash is recorded within "Prepaid expenses and other current assets" on the Consolidated Balance Sheets. At ~~December 31, 2022 and~~ September 30, 2022, this balance ~~includes $52.3 million and~~included $60.7 million ~~respectively,~~ of funds received from a customer which had previously been sold under our Receivables Purchase Agreement; this is offset by a corresponding liability in "Other current liabilities". No similar arrangements existed at March 31, 2023. The ~~majority of the~~ remaining balance ~~are~~includes funds held in trust on behalf of certain ~~clients; this asset is similarly~~clients, offset with a corresponding liability in "Other current liabilities"., and certain collateral obligations on contracts.


Table 9.2: Supplemental Disclosures of Cash Flow Information
Table 10.2: Supplemental Disclosures of Cash Flow Information						Table 10.2: Supplemental Disclosures of Cash Flow Information
		For the Three Months Ended					For the Six Months Ended
		December 31, 2022		December 31, 2021			March 31, 2023		March 31, 2022
		(in thousands)					(in thousands)
Interest payments	Interest payments	$	19,748	$	8,943	Interest payments	$	19,262	$	17,755
Income tax payments	Income tax payments	$	4,982	$	8,009	Income tax payments	$	31,926	$	50,531

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Accounts Receivable, Net


Table 9.3: Details of Accounts Receivable, Net
Table 10.3: Details of Accounts Receivable, Net						Table 10.3: Details of Accounts Receivable, Net
		December 31, 2022		September 30, 2022			March 31, 2023		September 30, 2022
		(in thousands)					(in thousands)
Billed and billable receivables	Billed and billable receivables	$	879,851	$	723,979	Billed and billable receivables	$	614,907	$	723,979
Unbilled receivables	Unbilled receivables	142,844		91,404		Unbilled receivables	134,695		91,404
Allowance for credit losses	Allowance for credit losses	(8,649)		(8,273)		Allowance for credit losses	(7,215)		(8,273)
Accounts receivable, net	Accounts receivable, net	$	1,014,046	$	807,110	Accounts receivable, net	$	742,387	$	807,110

In September 2022, we entered into a Receivables Purchase Agreement with Wells Fargo Bank N.A., under which we may sell certain ~~US-originated~~U.S.-originated accounts receivable balances up to a maximum amount of $110.0 million at any given time. In return for these sales, we receive a cash payment equal to the face value of the receivables less a financing charge.

We account for these transfers as sales. We have no retained interest in the transferred receivables other than administrative responsibilities, and Wells Fargo has no recourse for any credit risk. We estimate that the implicit servicing fees for an arrangement of this size and type would be immaterial.

For the ~~three~~six months ended ~~December~~March 31, ~~2022,~~2023, the gross fair value of accounts receivables transferred to Wells Fargo and derecognized from our balance sheet was ~~$209.6~~$292.8 million. In exchange for these sales, we received ~~$208.5~~$291.1 million ofin cash. The balance, representing a loss on sale from these transfers, is included within our selling, general and administrative expenses. We have recorded these transactions within our operating cash flows. The effective annual interest rate under this program was ~~4.8%~~5.04%.

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~~10.~~11. 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.

We evaluate, on a regular basis, developments in our litigation matters and establish or make adjustments to our accruals as appropriate. A liability is accrued if a loss is probable and the amount of such loss can be reasonably estimated. If the risk of loss is probable, but the amount cannot be reasonably estimated, or the risk of loss is only reasonably possible, a liability is not accrued. Due to the inherent uncertainty in the outcome of litigation, our estimates and assessments may prove to be incomplete or inaccurate and could be impacted by unanticipated events and circumstances, adverse outcomes or other future determinations.

~~Arizona Medicaid claims~~

From 2004 through 2009, we had a contract with the Arizona Health Care Cost Containment System (AHCCCS) in support of the state’s school-based Medicaid claims. We assisted local school districts with preparing and submitting claims to AHCCCS which, in turn, submitted claims for reimbursement to the Centers for Medicare and Medicaid Services (CMS).

CMS subsequently asserted two disallowances against AHCCCS. AHCCCS contested the first disallowance and ultimately settled that claim with CMS. The second disallowance of approximately $19.9 million was being contested by AHCCCS in court. AHCCCS previously asserted that its agreement with us required us to reimburse AHCCCS for the amounts owed to CMS and, on October 18, 2022, AHCCCS sued Maximus pertaining to the first disallowance - Snyder v. Maximus, Case No. CV2022-053302, Superior Court for the County of Maricopa. AHCCCS sought damages from us of $5.4 million. In December 2022, Maximus and AHCCCS agreed to settle both the lawsuit pertaining to the first disallowance and any assertions by AHCCCS pertaining to the second disallowance. The amount of the settlement had previously been accrued by the company. We exited the federal healthcare-claiming business in 2009 and no longer provide the services at issue in this matter.

~~11.~~12. SUBSEQUENT EVENT

On ~~January~~April 6, 2023, 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,~~May 31, 2023, to shareholders of record on ~~February~~May 15, 2023. Based upon the number of shares outstanding, we anticipate a cash payment of approximately ~~$17.1~~$17.0 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 in Item 1 and in the 'Special Note Regarding Forward-Looking Statements' in this Quarterly Report on Form 10-Q and the audited financial statements and related notes, risk factors and Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for fiscal year 2022 filed with the Securities and Exchange Commission on November 22, ~~2022 (the "2022 Form 10-K") and elsewhere in this Quarterly Report on Form 10-Q, as applicable.~~2022.

Business Overview

We are a global company with approximately 39,500 employees and 12,550 contingent workers dedicated to helping governments on four continents to administer their citizen-facing programs. Under our mission of Moving People Forward, we offer industry-leading expertise, including citizen engagement, eligibility and program integrity, independent clinical assessments and case management, and technology modernization services to enable citizens around the globe to successfully engage with their governments at all levels. We are instrumental in helping people who need governmental support get it.

Over the past five years, we have executed a three-pronged growth strategy: we have evolved through our digital transformation to meet the modernization needs of our clients; we have expanded our clinical assessment capabilities to meet growing demand for independent and conflict-free clinical services; and we have expanded our markets, both organically and through acquisitions.

In fiscal year 2022, we refreshed our strategy and updated the three pillars on which we will focus growth efforts for the next three to five years:

•Customer Services, Digitally Enabled. We apply proven technologies, data, and best practices to make government programs more customer-focused, effective, and deserving of the public's trust. We make it easier for people to connect to government services based on their individual preferences and abilities. We are elevating the customer experience to achieve higher levels of satisfaction, performance, and outcomes through intelligent automation and cognitive computing.

•Future of Health. We are expanding our clinical-related services and are experienced atin delivering clinical BPS services at scale. We have established an extensive set of services that frequently requires a network of healthcare professionals who can complete clinical assessments, provide occupational health and independent medical review services, and adjudicate complicated benefits appeals. With the formation of Maximus Public Health ("MPH"), we are able to serve as a resource to governments as they respond to public health threats and address lessons learned from the global pandemic.

•Advanced Technologies for Modernization. We are furthering our credibility as a technology leader, enabling the transformation of government programs to be resilient, dynamic, integrated, and equitable. Leveraging our deep relationships and program knowledge, we are delivering technology-driven business transformation of government missions with a strategic near-term focus on hybrid cloud solutions, information intelligence, and hyper-automation.

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Financial Overview

A number of factors have affected our results for the ~~first~~second quarter of fiscal year 2023, the most significant of which we have listed below. More detail on these changes is presented below within our "Results of Operations" section.

•Our business has grown, with new and expanded work replacing short-term COVID-19 work in prior years.

•Our SG&A cost base has expanded with the growth of the business, including investments in our workforce and business infrastructure.

•Our international business results have been tempered by the strength of the ~~United States~~U.S. Dollar ~~compared to~~against the other currencies in which we ~~do business.~~

•Although we have reported growth in all three segments, our profit margins within the United States in our current year are lower than in prior years. The end of short-term pandemic-related work, which had higher margins, is the principal driver.

•Our work in both periods has been affected by the ongoing public health emergency. Our results in future periods are expected to receive the benefit of increases in transaction-based work which was reduced or suspended as a result of the pandemic.operate.

•The cost of financing our debt has increased year-over-year as interest rates have increased.

Results of Operations

The following table sets forth items from our consolidated statements of operations for the three months and six months ended ~~December~~March 31, ~~2022~~2023 and ~~December~~March 31, ~~2021.~~2022.


Table MD&A 1: Consolidated Results of Operations	Table MD&A 1: Consolidated Results of Operations					Table MD&A 1: Consolidated Results of Operations
		For the Three Months Ended					For the Three Months Ended						For the Six Months Ended
		December 31, 2022		December 31, 2021			March 31, 2023			March 31, 2022			March 31, 2023			March 31, 2022
		(dollars in thousands, except per share data)					(dollars in thousands, except per share data)
Revenue	Revenue	$	1,249,246	$	1,150,876	Revenue	$	1,206,852		$	1,177,326		$	2,456,098		$	2,328,202
Cost of revenue	Cost of revenue	1,004,499		922,721		Cost of revenue	978,249			948,875			1,982,748			1,871,596
Gross profit	Gross profit	244,747		228,155		Gross profit	228,603			228,451			473,350			456,606
Gross profit percentage	Gross profit percentage	19.6 %		19.8 %		Gross profit percentage	18.9		%	19.4		%	19.3		%	19.6		%
Selling, general, and administrative expenses	Selling, general, and administrative expenses	146,452		124,221		Selling, general, and administrative expenses	142,448			130,307			288,900			254,528
Selling, general, and administrative expenses as a percentage of revenue	Selling, general, and administrative expenses as a percentage of revenue	11.7 %		10.8 %		Selling, general, and administrative expenses as a percentage of revenue	11.8		%	11.1		%	11.8		%	10.9		%
Amortization of intangible assets	Amortization of intangible assets	23,518		22,405		Amortization of intangible assets	23,650			22,856			47,168			45,261
Operating income	Operating income	74,777		81,529		Operating income	62,505			75,288			137,282			156,817
Operating margin	Operating margin	6.0 %		7.1 %		Operating margin	5.2		%	6.4		%	5.6		%	6.7		%
Interest expense	Interest expense	21,606		9,638		Interest expense	20,999			9,438			42,605			19,076
Other income/(expense), net		266		(311)
Other income, net						Other income, net	818			715			1,084			404
Income before income taxes	Income before income taxes	53,437		71,580		Income before income taxes	42,324			66,565			95,761			138,145
Provision for income taxes	Provision for income taxes	13,442		18,250		Provision for income taxes	10,536			16,469			23,978			34,719
Effective tax rate	Effective tax rate	25.2 %		25.5 %		Effective tax rate	24.9		%	24.7		%	25.0		%	25.1		%
Net income	Net income	$	39,995	$	53,330	Net income	$	31,788		$	50,096		$	71,783		$	103,426
Earnings per share:	Earnings per share:					Earnings per share:
Basic	Basic	$	0.65	$	0.86	Basic	$	0.52		$	0.81		$	1.17		$	1.66
Diluted	Diluted	$	0.65	$	0.85	Diluted	$	0.52		$	0.80		$	1.17		$	1.66

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.

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Table MD&A 2: Changes in Revenue, Cost of Revenue, and Gross Profit for the Three Months Ended December 31, 2022
Table MD&A 2: Changes in Revenue, Cost of Revenue, and Gross Profit for the Three Months Ended March 31, 2023														Table MD&A 2: Changes in Revenue, Cost of Revenue, and Gross Profit for the Three Months Ended March 31, 2023
		Revenue				Cost of Revenue				Gross Profit					Revenue				Cost of Revenue				Gross Profit
		Dollars		% Change		Dollars		% Change		Dollars		% Change			Dollars		% Change		Dollars		% Change		Dollars		% Change
		(dollars in thousands)													(dollars in thousands)
Three Months Ended December 31, 2021		$	1,150,876			$	922,721			$	228,155
Three Months Ended March 31, 2022														Three Months Ended March 31, 2022	$	1,177,326			$	948,875			$	228,451
Organic effect	Organic effect	118,643		10.3	%	98,924		10.7	%	19,719		8.6	%	Organic effect	46,020		3.9	%	44,646		4.7	%	1,374		0.6	%
Disposal of businesses														Disposal of businesses	(3,456)		(0.3)	%	(3,343)		(0.4)	%	(113)		—	%
Acquired growth	Acquired growth	2,113		0.2	%	1,256		0.1	%	857		0.4	%	Acquired growth	1,335		0.1	%	687		0.1	%	648		0.3	%
Currency effect compared to the prior period	Currency effect compared to the prior period	(22,386)		(1.9)	%	(18,402)		(2.0)	%	(3,984)		(1.7)	%	Currency effect compared to the prior period	(14,373)		(1.2)	%	(12,616)		(1.3)	%	(1,757)		(0.8)	%
Three Months Ended December 31, 2022		$	1,249,246	8.5	%	$	1,004,499	8.9	%	$	244,747	7.3	%
Three Months Ended March 31, 2023														Three Months Ended March 31, 2023	$	1,206,852	2.5	%	$	978,249	3.1	%	$	228,603	0.1	%


Table MD&A 3: Changes in Revenue, Cost of Revenue, and Gross Profit for the Six Months Ended March 31, 2023
	Revenue				Cost of Revenue				Gross Profit
	Dollars		% Change		Dollars		% Change		Dollars		% Change
	(dollars in thousands)
Six Months Ended March 31, 2022	$	2,328,202			$	1,871,596			$	456,606
Organic effect	164,664		7.1	%	143,569		7.7	%	21,095		4.6	%
Disposal of businesses	(3,456)		(0.1)	%	(3,343)		(0.2)	%	(113)		—	%
Acquired growth	3,448		0.1	%	1,943		0.1	%	1,505		0.3	%
Currency effect compared to the prior period	(36,760)		(1.6)	%	(31,017)		(1.7)	%	(5,743)		(1.3)	%
Six Months Ended March 31, 2023	$	2,456,098	5.5	%	$	1,982,748	5.9	%	$	473,350	3.7	%

Selling, general, and administrative expenses ("SG&A")

Selling, general, and administrative expenses ("SG&A") consist 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 primarily driven by~~with growth in our business ~~including additional spending~~and investments made in ~~anticipation~~our workforce and infrastructure. Our SG&A expense also includes losses relating to the sale of ~~future work, and approximately $6.5 million related to severance programs anticipated to reduce costs~~two small businesses in ~~future periods.~~2023.

Interest Expense

~~Our interest~~Interest expense for the three months ended March 31, 2022 and March 31, 2023, increased from ~~$9.6~~$9.4 million into $21.0 million. Interest expense for the ~~first quarter of fiscal year~~six months ended March 31, 2022 and March 31, 2023 increased from $19.1 million to ~~$21.6 million in the first quarter of fiscal year 2023,~~$42.6 million. These increases are principally ~~driven by increases in our interest rate.~~ due to market rate increases.

Our effective interest rate was 5.9% at ~~December~~March 31, ~~2022 was 6.0%,~~2023, compared to ~~2.3%~~2.4% at ~~December~~March 31, ~~2021.~~2022. We have mitigated our risk by fixing interest rates on ~~$500~~$650 million of our debt and our near term capital allocation plan continues to prioritize reducing our debt using our free cash flow. At our current debt balances, a 100 basis point change in SOFR would result in an increased annual interest expense of $6.4 million.

Provision for Income Taxes

Our effective income tax rate for the three and six months ended ~~December~~March 31, ~~2022~~2023, was 24.9% and ~~2021, was 25.2 %~~25.0%, respectively, compared to 24.7% and ~~25.5 %, respectively.~~25.1% for the three and six months ended March 31, 2022. For fiscal year 2023, we expect the effective tax rate to be between 24.5% and 25.5%.

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U.S. Federal Services Segment

~~Table of Contents~~


Table MD&A 3: U.S. Federal Services Segment - Financial Results
Table MD&A 4: U.S. Federal Services Segment - Financial Results								Table MD&A 4: U.S. Federal Services Segment - Financial Results
		For the Three Months Ended							For the Three Months Ended				For the Six Months Ended
		December 31, 2022			December 31, 2021				March 31, 2023		March 31, 2022		March 31, 2023		March 31, 2022
		(dollars in thousands)							(dollars in thousands)
Revenue	Revenue	$	618,167		$	581,871		Revenue	$	584,075	$	573,288	$	1,202,242	$	1,155,159
Cost of revenue	Cost of revenue	495,473			455,295			Cost of revenue	461,201		458,135		956,674		913,430
Gross profit	Gross profit	122,694			126,576			Gross profit	122,874		115,153		245,568		241,729
Selling, general, and administrative expenses	Selling, general, and administrative expenses	71,649			64,925			Selling, general, and administrative expenses	75,050		68,949		146,699		133,874
Operating income	Operating income	51,045			61,651			Operating income	47,824		46,204		98,869		107,855
Gross profit percentage	Gross profit percentage	19.8		%	21.8		%	Gross profit percentage	21.0 %		20.1 %		20.4 %		20.9 %
Operating margin percentage	Operating margin percentage	8.3		%	10.6		%	Operating margin percentage	8.2 %		8.1 %		8.2 %		9.3 %

Our revenue and cost of revenue for the three months ended ~~December~~March 31, ~~2022,~~2023, increased ~~6.2%~~1.9% and ~~8.8%~~0.7%, respectively. For the six months ended March 31, 2023, growth was 4.1% and 4.7%, respectively. All growth in fiscal year 2023 was ~~organic and net of anticipated declines in short-term work related to the pandemic.~~organic.

Our U.S. Federal Services business grew primarily from volume growth in our VES business. Profit margins were tempered as the business is being scaled up for higher volumes, which we anticipate in ~~clinical services due, in part, to new wins and~~future quarters. The three months ended March 31, 2023 received a short-term margin benefit from ~~the expansion of~~ a ~~large, cost-plus contract. As is typically the case, such contracts record lower margins than transaction-based work. Fiscal~~contract close-out. Our fiscal year 2022 ~~also received some benefit from~~results included the closing stages of short-term, ~~higher-margin work~~pandemic related ~~to the pandemic.~~services, which operated at higher margins.

We anticipate that our U.S. Federal Services business will continue to grow in fiscal year 2023, driven primarily by additional volumes anticipated in the VES business. We anticipate full year operating margins will range between 10% and 11%.

U.S. Services Segment

Table MD&A 4: U.S. Services Segment - Financial Results
For the Three Months Ended
December 31, 2022 December 31, 2021
(dollars in thousands)
Revenue $ 439,478 $ 386,417
Cost of revenue 355,880 296,718
Gross profit 83,598 89,699
Selling, general, and administrative expenses 45,842 35,102
Operating income 37,756 54,597
Gross profit percentage 19.0 % 23.2 %
Operating margin percentage 8.6 % 14.1 %

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Table MD&A 5: U.S. Services Segment - Financial Results
	For the Three Months Ended				For the Six Months Ended
	March 31, 2023		March 31, 2022		March 31, 2023		March 31, 2022
	(dollars in thousands)
Revenue	$	449,703	$	398,077	$	889,181	$	784,494
Cost of revenue	363,687		313,106		719,567		609,824
Gross profit	86,016		84,971		169,614		174,670
Selling, general, and administrative expenses	43,415		38,273		89,257		73,375
Operating income	42,601		46,698		80,357		101,295
Gross profit percentage	19.1 %		21.3 %		19.1 %		22.3 %
Operating margin percentage	9.5 %		11.7 %		9.0 %		12.9 %

Our revenue and cost of revenue for the three months ended ~~December~~March 31, ~~2022,~~2023, increased ~~13.7%~~13.0% and ~~19.9%~~16.2%, respectively, compared to the three months ended ~~December~~March 31, ~~2021.~~2022. For the six months ended March 31, 2023, our revenue and cost of revenue increased 13.3% and 18.0%, respectively, compared to the six months ended March 31, 2022. All movement was organic and net of anticipated declines in short-term work related to the pandemic.

~~New business~~Revenue has increased ~~revenue~~from expanded contracts and new work, but margins remain tempered as the short-term, pandemic-related work from prior years has declined.

~~Table of Contents~~

This segment is expected to see the greater benefit from the resumption of Medicaid eligibility redeterminations, following passage of the Consolidated Appropriations Act, 2023 (the omnibus spending bill) which decouples redeterminations from the end of the Public Health Emergency (PHE). Subsequent to the passage of the omnibus spending bill, President Biden on January 30, 2023 announced plans to end the existing PHE and national emergency declarations on May 11, 2023. While this will impact areas of healthcare delivery such as COVID testing, treatment and telemedicine, the decoupling of Medicaid redeterminations under the omnibus spending bill effectively superseded this decision by the administration.redeterminations. The nature and timing of the benefit will be dependent upon how the states coordinate the return of these services, but we continue to anticipate that services will commence during our third fiscal quarter, with a greater contribution in the final quarter of the year. We anticipate a full year operating profit margin will be between 9% and 11%.

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 Advisory Service ("HAAS") and Restart; Australia, including Workforce Australia (formerly jobactive) and the Disability Employment Service; Canada, including the Employment Program of British Columbia; in addition to Italy, Saudi Arabia, Singapore, South Korea, ~~Sweden,~~ and UAE, where we predominantly provide employment support and job seeker services.

Table MD&A 5: Outside the U.S. Segment - Financial Results
For the Three Months Ended
December 31, 2022 December 31, 2021
(dollars in thousands)
Revenue $ 191,601 $ 182,588
Cost of revenue 153,146 170,708
Gross profit 38,455 11,880
Selling, general, and administrative expenses 28,389 21,340
Operating (loss)/income 10,066 (9,460)
Gross profit percentage 20.1 % 6.5 %
Operating margin percentage 5.3 % (5.2) %

Table MD&A 6: Outside the U.S. Segment - Changes in Revenue, Cost of Revenue and Gross Profit
Revenue Cost of Revenue Gross Profit
Amount % Change Amount % Change Amount % Change
(dollars in thousands)
Three Months Ended December 31, 2021 $ 182,588 $ 170,708 $ 11,880
Organic effect 29,286 16.0 % (416) (0.2) % 29,702 250.0 %
Acquired growth 2,113 1.2 % 1,256 0.7 % 857 7.2 %
Currency effect compared to the prior period (22,386) (12.3) % (18,402) (10.8) % (3,984) (33.5) %
Three Months Ended December 31, 2022 $ 191,601 4.9 % $ 153,146 (10.3) % $ 38,455 223.7 %

This segment experienced significant organic revenue growth with stable costs. This benefit was partially offset by significant declines in the value of international currencies against the United States Dollar.

Our organic revenue growth is principally driven by the United Kingdom Restart contract, which is now at full capacity; our margins in fiscal year 2022 were tempered as the Restart contract was still ramping up. Within our Australian business, we have taken steps to reduce costs to reflect the decline in our work.


Table MD&A 6: Outside the U.S. Segment - Financial Results
	For the Three Months Ended				For the Six Months Ended
	March 31, 2023		March 31, 2022		March 31, 2023		March 31, 2022
	(dollars in thousands)
Revenue	$	173,074	$	205,961	$	364,675	$	388,549
Cost of revenue	153,361		177,634		306,507		348,342
Gross profit	19,713		28,327		58,168		40,207
Selling, general, and administrative expenses	23,425		24,011		51,814		45,351
Operating income/(loss)	(3,712)		4,316		6,354		(5,144)
Gross profit percentage	11.4 %		13.8 %		16.0 %		10.3 %
Operating margin percentage	(2.1) %		2.1 %		1.7 %		(1.3) %

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Table MD&A 7: Outside the U.S. Segment - Changes in Revenue, Cost of Revenue, and Gross Profit for the Three Months Ended March 31, 2023
	Revenue				Cost of Revenue				Gross Profit
	Amount		% Change		Amount		% Change		Amount		% Change
	(dollars in thousands)
Three Months Ended March 31, 2022	$	205,961			$	177,634			$	28,327
Organic effect	(16,393)		(8.0)	%	(9,001)		(5.1)	%	(7,392)		(26.1)	%
Disposal of businesses	(3,456)		(1.7)	%	(3,343)		(1.9)	%	(113)		(0.4)	%
Acquired growth	1,335		0.6	%	687		0.4	%	648		2.3	%
Currency effect compared to the prior period	(14,373)		(7.0)	%	(12,616)		(7.1)	%	(1,757)		(6.2)	%
Three Months Ended March 31, 2023	$	173,074	(16.0)	%	$	153,361	(13.7)	%	$	19,713	(30.4)	%


Table MD&A 8: Outside the U.S. Segment - Changes in Revenue, Cost of Revenue, and Gross Profit for the Six Months Ended March 31, 2023
	Revenue				Cost of Revenue				Gross Profit
	Amount		% Change		Amount		% Change		Amount		% Change
	(dollars in thousands)
Six Months Ended March 31, 2022	$	388,549			$	348,342			$	40,207
Organic effect	12,894		3.3	%	(9,418)		(2.7)	%	22,312		55.5	%
Disposal of businesses	(3,456)		(0.9)	%	(3,343)		(1.0)	%	(113)		(0.3)	%
Acquired growth	3,448		0.9	%	1,943		0.6	%	1,505		3.7	%
Currency effect compared to the prior period	(36,760)		(9.5)	%	(31,017)		(8.9)	%	(5,743)		(14.3)	%
Six Months Ended March 31, 2023	$	364,675	(6.1)	%	$	306,507	(12.0)	%	$	58,168	44.7	%

Our results for the three months ended March 31, 2023, were impacted by declines in our Australian contract. Following rebid activity in June 2022, these contracts were significantly reduced in scope.

Our results for the six months ended March 31, 2023, were affected by the decline in Australian business, but this was offset by significant profitable growth in our expanding Restart program, which ramped up through the first quarter of this fiscal year.

This segment also had revenue and margins tempered by delays in a major new program, as well as challenges in achieving volumes in some of our employment programs as a result of low unemployment in our emerging markets.

In March 2023, we sold a small commercial practice in the United Kingdom and our employment operations in Sweden. Prospectively, we anticipate this will marginally improve our profit margins.

Much of our revenue growth stems from our employment services contracts, where we are paid based upon our ability to place individuals in long-term sustained employment. As a result, changes in our estimates of our ability to place people in work and the time that this will take can have significant effects on our revenue. Our estimates are based upon historical performance, where appropriate and available, and are constantly updated. This segment also includes a large software implementation project where revenue is based upon estimates of our anticipated overall performance. Changes in this estimate are recorded upon as a cumulative adjustment to revenue. There were no significant adjustments in this fiscal quarter.

~~We anticipate our Outside the United States Segment will experience greater stability in fiscal year 2023, with less disruption from residual pandemic factors and underpinned by our core programs.~~ We anticipate operating margins will range between 3%1% and 7%3% for the full fiscal year.

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Liquidity and Capital Resources

Our primary sources of liquidity are cash on hand, cash from operations, and availability under our revolving credit facilities. As of ~~December~~March 31, ~~2022,~~2023, we had ~~$63.1~~$56.3 million in cash and cash equivalents. We believe that our current cash position, access to our revolving debt, and cash flow generated from operations should be not only sufficient for our operating requirements but also to enable us to fund required long-term debt repayments, dividends and any share purchases we might choose to make. See "Note 6. Debt and Derivatives" to the Consolidated Financial Statements for a more detailed discussion of our debt financing arrangements.

During the first ~~quarter~~half of fiscal year 2023, we entered into a number of debt-related transactions.

•We entered into an additional interest rate ~~swap,~~swaps, to bring the total balance of our credit facility subject to fixed rates to ~~$500~~$650 million. This allows us greater opportunity to predict and manage our interest payments.

•We amended both our debt and the corresponding interest rate swaps to use interest rates based upon the Secured Overnight Financing Rate (SOFR), replacing the previous LIBOR basis. This transaction anticipates the phasing out of LIBOR rates in 2023.

•As part of the transition to SOFR, we took the opportunity to redeem some of our Term Loan B ~~debt, which we repaid using our revolving credit facility.~~debt.


Table MD&A 7: Net Change in Cash and Cash Equivalents and Restricted Cash
Table MD&A 9: Net Change in Cash and Cash Equivalents and Restricted Cash						Table MD&A 9: Net Change in Cash and Cash Equivalents and Restricted Cash
		For the Three Months Ended					For the Six Months Ended
		December 31, 2022		December 31, 2021			March 31, 2023		March 31, 2022
		(in thousands)					(in thousands)
Operating activities:	Operating activities:					Operating activities:
Net cash used in operating activities		$	(134,659)	$	(2,919)
Net cash provided by operating activities						Net cash provided by operating activities	$	175,037	$	111,859
Net cash used in investing activities	Net cash used in investing activities	(15,697)		(6,327)		Net cash used in investing activities	(24,627)		(22,902)
Net cash provided by financing activities		170,967		54,916
Net cash used in financing activities						Net cash used in financing activities	(171,671)		(133,883)
Effect of foreign exchange rates on cash and cash equivalents and restricted cash	Effect of foreign exchange rates on cash and cash equivalents and restricted cash	2,421		372		Effect of foreign exchange rates on cash and cash equivalents and restricted cash	3,186		324
Net change in cash and cash equivalents and restricted cash	Net change in cash and cash equivalents and restricted cash	$	23,032	$	46,042	Net change in cash and cash equivalents and restricted cash	$	(18,075)	$	(44,602)

Net Cash ~~Used In~~Provided By Operating Activities

Net cash ~~used in~~provided by operating activities was ~~$134.7~~$175.0 million in the first half of fiscal year ~~2023. Our first fiscal quarter is typically light for~~2023, an increase of $63.2 million. This increase was principally from our improved cash flow as collections often slow in December, bonus payments are made and, in recent years, we have paid deferred payroll taxes. The biggest driver of this decline was due to strong collections experienced in the fourth quarter of last year, followed by delays in December. Ourcollections; our Days Sales Outstanding ("DSO") at September 30, 2022 was 62 days; the corresponding DSO at ~~December~~March 31, ~~2022~~2023 was 7456 days. ~~We anticipate improved collections through the remainder of the year;~~This DSO is below our anticipated range and will likely return to a balance between 60-70 days by ~~the end of January we had already received sufficient funds to pay down approximately $75 million of revolving debt. Operating cash flows were also affected by increases in the costs of servicing~~year end. Increased interest payments on our debt, ~~owing to rising~~driven by interest ~~rates.~~rate increases, were offset by declines in income tax payments.

Net Cash Used In Investing Activities

Investing ~~activities~~cash outflows in fiscal years 2023 and 2022 reflect acquisitions of property and equipment and investment in software.

~~Table~~ In fiscal year 2023, we received payments for the sale of ~~Contents~~

our Swedish business and an installment payment on the sale of a small commercial practice in the United Kingdom.

Net Cash ~~Provided By~~Used In Financing Activities

~~Our net borrowings~~Net financing cash outflows reflect mandatory and early payments on our ~~credit agreement correspond with the slow payments received this quarter.~~debt.

At September 30, 2022, our restricted cash balance was inflated by a large customer receivable of ~~$60.4~~$60.7 million, which was paid to us after we had sold the balance to a third party, resulting in a financing cash inflow. ~~At December 2022, a similar event arose for a sum of $52.3 million. Absent further transactions, we anticipate a financing cash outflow of $52.3 million related to this cash balance at~~During the period ended March 31, ~~2023.~~2023, the payment was made and no similar timing differences existed as of March 31, 2023, resulting in a net cash outflow.

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Credit Facilities

Our principal debt agreement is with JPMorgan Chase Bank N.A. (the Credit Agreement). At March 31, 2023, we owed $1.29 billion under the Credit Agreement, with access to an additional $600 million through a revolving credit facility. Mandatory repayments are required under this agreement through May 2028, when the agreement ends, and must be renegotiated or the funds repaid.

The Credit Agreement contains a number of covenants with which we are expected to comply. Failure to meet these requirements would result in a need to renegotiate the agreement or a requirement to repay our outstanding debt in full. There are two financial covenants, both defined in the Credit Agreement.

•Our Consolidated Net Total Leverage Ratio means, for any twelve-month period, the ratio of our Funded Debt, offset by up to $75 million of unrestricted cash (Consolidated Total Leverage), against our Consolidated EBITDA (as defined by the Credit Agreement). To comply with our Credit Agreement, this ratio cannot exceed 4.00:1.00 at the end of each quarter, with a step-up to 4.50:1.00 under certain circumstances. This ratio also determines both our interest rate and the charge we pay on the unused component of our revolving credit facility, with the charge increasing as the leverage ratio increases.

•Our Consolidated Net Interest Coverage Ratio means, for any twelve-month period, the ratio of our Consolidated EBITDA against our Consolidated Net Interest Expense, as defined by the Credit Agreement. To comply with our Credit Agreement, this ratio cannot be less than 3.00:1.00 at the end of each quarter.

Consolidated EBITDA also drives certain permissions within the Credit Agreement, such as the level of investment we are entitled to make without seeking additional approval from our lenders.

Our Credit Agreement defines Consolidated EBITDA, as well as other components of the calculations above. The definition of Consolidated EBITDA requires us to include adjustments not typically included within EBITDA, including unusual, non-recurring expenses, certain non-cash adjustments, the pro forma effects of acquisitions and disposals and estimated synergies from acquisitions. As a result, Consolidated EBITDA as defined by the Credit Agreement may not be comparable to EBITDA or related or similarly-titled measures presented by other companies.

We have summarized below the components of our two financial ratio calculations, including the components of Consolidated EBITDA as defined by the Credit Agreement which are included within our financial statements. At March 31, 2023, we were in compliance with all applicable covenants of our Credit Agreement. We do not believe that these covenants represent a significant restriction in our ability to operate our business or to pay our dividends.


Table MD&A 10: Reconciliation of Net Income to Consolidated EBITDA as defined by our Credit Agreement
	For the Three Months Ended		For the Trailing Twelve Months Ended
	March 31, 2023		March 31, 2023
	(in thousands)
Net income	$	31,788	$	172,185
Adjustments:
Interest expense	20,999		69,494
Other (income)/expense, net	(818)		2,155
Provision for income taxes	10,536		62,529
Amortization of intangibles	23,650		92,372
Stock compensation expense	9,540		29,367
Acquisition-related expenses	(126)		(635)
Gain on sale of land and building	—		(11,046)
Loss on sale of businesses	883		883

Depreciation and amortization of property, equipment, and capitalized software	14,041		47,452
Pro forma and other adjustments permitted by our credit agreement	(1,481)		37,016
Consolidated EBITDA (as defined by our Credit Agreement)	$	109,012	$	501,772

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Table MD&A 11: Consolidated Net Total Leverage Ratio
	For the Trailing Twelve Months Ended
(in thousands, except ratio data)	March 31, 2023

Funded Debt (as defined by our Credit Agreement)	$	1,298,256
Cash and cash equivalents up to $75 million	56,344
Consolidated Net Total Leverage (as defined by our Credit Agreement)	$	1,241,912

Consolidated Net Total Leverage Ratio (as defined by our Credit Agreement)	2.48


Table MD&A 12: Consolidated Net Interest Coverage Ratio
	For the Trailing Twelve Months Ended
(in thousands, except ratio data)	March 31, 2023

Consolidated EBITDA (as defined by our Credit Agreement)	$	501,772

Interest expense	69,494
Components of other income/expense, net allowed in ratio calculation	(1,084)

Consolidated Net Interest Expense (as defined by our Credit Agreement)	$	68,410

Consolidated Net Interest Coverage Ratio (as defined by our Credit Agreement)	7.33

Cash in Foreign Locations

We have no requirement to remit funds from our foreign locations to the United States. We will continue to explore opportunities to remit additional funds, taking into consideration the working capital requirements and relevant tax rules in each jurisdiction. When we are unable to remit funds back without incurring a penalty, we will consider these funds indefinitely reinvested until such time as these restrictions are changed. As a result, we do not record U.S. deferred income taxes on any funds held in foreign jurisdictions. We have not attempted to calculate our potential liability from any transfer of these funds, as any such transaction might include tax planning strategies that we have not fully explored. Accordingly, it is not possible to estimate the potential tax obligations if we were to remit all of our funds from foreign locations to the United States.

Free Cash Flow


Table MD&A 8: Free Cash Flow
Table MD&A 13: Free Cash Flow						Table MD&A 13: Free Cash Flow
		For the Three Months Ended					For the Six Months Ended
		December 31, 2022		December 31, 2021			March 31, 2023		March 31, 2022
		(in thousands)					(in thousands)
Net cash used in operating activities		$	(134,659)	$	(2,919)
Net cash provided by operating activities						Net cash provided by operating activities	$	175,037	$	111,859
Purchases of property and equipment and capitalized software	Purchases of property and equipment and capitalized software	(15,697)		(6,327)		Purchases of property and equipment and capitalized software	(33,751)		(22,898)
Free cash flow	Free cash flow	$	(150,356)	$	(9,246)	Free cash flow	$	141,286	$	88,961

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Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires us to make estimates, judgments, and assumptions that affect the amounts reported. Actual results could differ from those estimates. The 2022 Form 10-K, as filed with the SEC on November 22, 2022, includes a summary of critical accounting policies we believe are the most important to aid in understanding our financial results. There have been no changes to those critical accounting policies that have had a material impact on our reported amounts of assets, liabilities, revenues, or expenses during the three or six months ended ~~December~~March 31, ~~2022.~~2023.

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Non-GAAP and Other Measures

We utilize non-GAAP measures where we believe it will assist users of our financial statements in understanding our business. The presentation of these measures is meant to complement, but not replace, other financial measures in this document. The presentation of non-GAAP numbers is not meant to be considered in isolation, nor as an alternative to revenue growth, cash flows from operating activities, net income, or earnings per share as measures of performance. These non-GAAP measures, as determined and presented by us, may not be comparable to related or similarly titled measures presented by other companies.

For the three months ended ~~December~~March 31, ~~2022, 15%~~2023, 14% of our revenue was generated outside the U.S. We believe that users of our financial statements wish to understand the performance of our foreign operations using a methodology that excludes the effect of year-over-year exchange rate fluctuations. To calculate year-over-year currency movement, we determine the current fiscal year's results for all foreign businesses using the exchange rates in the prior fiscal year.

In recent years, we have made a number of acquisitions. We believe users of our financial statements wish to evaluate the performance of our operations, excluding changes that have arisen due to businesses acquired or disposed of. We identify acquired revenue and cost of revenue by showing these results for periods for which no comparative results exist within our financial statements. We identify revenue and cost of revenue that has been disposed of in a similar manner. This information is supplemented by our calculations of organic growth. To calculate organic growth, we compare current fiscal year results excluding transactions from acquisitions or disposals, to our prior fiscal year results.

Our recent acquisitions have resulted in significant intangible assets which are amortized over their estimated useful lives. We believe users of our financial statements wish to understand the performance of the business by using a methodology that excludes the amortization of our intangible assets. Accordingly, we have calculated our operating profit, net income, and earnings per share, excluding the effect of the amortization of intangible assets. We have included the following table showing our reconciliation of these income measures to their corresponding U.S. GAAP measures.


Table MD&A 9: Non-GAAP Adjusted Results Excluding Amortization of Intangible Assets
Table MD&A 14: Non-GAAP Adjusted Results Excluding Amortization of Intangible Assets								Table MD&A 14: Non-GAAP Adjusted Results Excluding Amortization of Intangible Assets
		For the Three Months Ended							For the Three Months Ended						For the Six Months Ended
		December 31, 2022			December 31, 2021				March 31, 2023			March 31, 2022			March 31, 2023			March 31, 2022
		(dollars in thousands, except per share data)							(dollars in thousands, except per share data)
Operating income	Operating income	$	74,777		$	81,529		Operating income	$	62,505		$	75,288		$	137,282		$	156,817
Add back: Amortization of intangible assets	Add back: Amortization of intangible assets	23,518			22,405			Add back: Amortization of intangible assets	23,650			22,856			47,168			45,261
Adjusted operating income excluding amortization of intangible assets (Non-GAAP)	Adjusted operating income excluding amortization of intangible assets (Non-GAAP)	$	98,295		$	103,934		Adjusted operating income excluding amortization of intangible assets (Non-GAAP)	$	86,155		$	98,144		$	184,450		$	202,078
Adjusted operating income margin excluding amortization of intangible assets (Non-GAAP)	Adjusted operating income margin excluding amortization of intangible assets (Non-GAAP)	7.9		%	9.0		%	Adjusted operating income margin excluding amortization of intangible assets (Non-GAAP)	7.1		%	8.3		%	7.5		%	8.7		%

Net income	Net income	$	39,995		$	53,330		Net income	$	31,788		$	50,096		$	71,783		$	103,426
Add back: Amortization of intangible assets, net of tax	Add back: Amortization of intangible assets, net of tax	17,360			16,530			Add back: Amortization of intangible assets, net of tax	17,446			16,884			34,806			33,414
Adjusted net income excluding amortization of intangible assets (Non-GAAP)	Adjusted net income excluding amortization of intangible assets (Non-GAAP)	$	57,355		$	69,860		Adjusted net income excluding amortization of intangible assets (Non-GAAP)	$	49,234		$	66,980		$	106,589		$	136,840

Diluted earnings per share	Diluted earnings per share	$	0.65		$	0.85		Diluted earnings per share	$	0.52		$	0.80		$	1.17		$	1.66
Add back: Effect of amortization of intangible assets on diluted earnings per share	Add back: Effect of amortization of intangible assets on diluted earnings per share	0.29			0.27			Add back: Effect of amortization of intangible assets on diluted earnings per share	0.28			0.27			0.57			0.53
Adjusted diluted earnings per share excluding amortization of intangible assets (Non-GAAP)	Adjusted diluted earnings per share excluding amortization of intangible assets (Non-GAAP)	$	0.94		$	1.12		Adjusted diluted earnings per share excluding amortization of intangible assets (Non-GAAP)	$	0.80		$	1.07		$	1.74		$	2.19

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In order to sustain our cash flows from operations, we regularly refresh our fixed assets and technology. We believe that users of our financial statements wish to understand the cash flows that directly correspond with our operations and the investments we must make in those operations using a methodology that combines operating cash flows and capital expenditures. We provide free cash flow to complement our statement of cash flows. Free cash flow shows the effects of our operations and replacement capital expenditures and excludes the cash flow effects of acquisitions, purchases of our common stock, dividend payments, and other financing transactions. We have provided a reconciliation of cash flows from operations to free cash flow in "Liquidity and Capital Resources."

~~Table of Contents~~

To sustain our operations, our principal source of financing comes from receiving payments from our customers. We believe that users of our financial statements wish to evaluate our efficiency in converting revenue into cash receipts. Accordingly, we provide DSO, which we calculate by dividing billed and unbilled receivable balances at the end of each quarter by revenue per day for the period. Revenue per day for a quarter is determined by dividing total revenue by 91 days.

Our Credit Agreement includes the defined term Consolidated EBITDA and our calculation of Adjusted EBITDA conforms to the Credit Agreement. We believe our investors appreciate the opportunity to understand the possible restrictions which arise from our Credit Agreement.

•Adjusted EBITDA is also a useful measure of performance that focuses on the cash generating capacity of the business as it excludes the non-cash expenses of depreciation and amortization, and makes for easier comparisons between the operating performance of companies with different capital structures by excluding interest expense and therefore, the impacts of financing costs.

•~~The measure of Adjusted EBITA is a step in calculating Adjusted EBITDA and facilitates comparisons to similar businesses as it isolates the amortization effect of business combinations.~~

•~~The Credit Agreement requires us to adjust for unusual, non-recurring expenses, certain non-cash adjustments and estimated synergies from acquisitions.~~

~~We have provided a reconciliation from net income to Non-GAAP Adjusted EBITA, Non-GAAP Adjusted EBITDA, and Non-GAAP Adjusted EBITDA per our Credit Agreement, as shown below.~~

Table MD&A 10: Reconciliation of Net Income to Non-GAAP Adjusted EBITA, Non-GAAP Adjusted EBITDA, and Non-GAAP Adjusted EBITDA per our Credit Agreement
For the Three
Months Ended For the Trailing Twelve
Months Ended
December 31, 2022 December 31, 2022
(in thousands)
Net income $ 39,995 $ 190,493
Adjustments:
Interest expense 21,606 57,933
Other (income)/expense, net (266) 2,258
Provision for income taxes 13,442 68,462
Amortization of intangibles 23,518 91,578
Stock compensation expense 4,403 26,631
Acquisition-related expenses 1,394 (764)
Gain on sale of land and building — (11,046)
Adjusted EBITA - Non-GAAP measure 104,092 425,545
Depreciation and amortization of property, equipment, and capitalized software 12,280 43,245
Adjusted EBITDA - Non-GAAP measure 116,372 $ 468,790
Adjustments permitted by our credit agreement - Non-GAAP measure 13,513 40,328
Adjusted EBITDA per our credit agreement - Non-GAAP measure $ 129,885 $ 509,118

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

In the normal course of business, we are exposed to financial risks such as changes in interest rates, foreign currency exchange rates, and counterparty risk. We use derivative instruments to manage selected interest rate exposures. The Company's market rate risk disclosures set forth in Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk" on the 2022 Form 10-K, as filed with the SEC on November 22, 2022, have not changed materially during the ~~three~~six month period ended ~~December~~March 31, ~~2022.~~2023.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer concluded that these disclosure controls and procedures were effective and designed to ensure that the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of our internal control that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II - Other Information

Item 1. Legal Proceedings

Refer to our disclosures included in "Note ~~10.~~11. Commitments and Contingencies" included in Part 1, Item 1 of this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

There were no material changes during the ~~three~~six months ended ~~December~~March 31, ~~2022,~~2023, to the risk factors previously disclosed in the 2022 Form 10-K, as filed with the SEC on November 22, 2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a)None.

(b)None.

(c)None.

Item 3. Defaults Upon Senior Securities

(a)None.

(b)None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

(a)None.

(b)None.

Item 6. Exhibits

Exhibit
No.

Description of Exhibit

3.2

Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 of the Company's Current Report on Form 8-K dated March 15, 2023).

31.1

Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.

31.2

Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.

32.1

Certification of Chief Executive Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

32.2

Certification of Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

~~10.1~~

~~Amendment No. 3 to Credit Agreement by and between the Company, JPMorgan Chase Bank, N.A., as administrative agent and the lenders.~~

101.INS

XBRL Instance Document.

101.SCH

XBRL Taxonomy Extension Schema Document.

101.CAL

XBRL Taxonomy Calculation Linkbase Document.

101.DEF

XBRL Taxonomy Definition Linkbase Document.

101.LAB

XBRL Taxonomy Label Linkbase Document.

101.PRE

XBRL Taxonomy Presentation Linkbase Document.

104

Cover Page Interactive Data ~~File.~~File (formatted as Inline XBRL tags and contained in Exhibit 101).



v			Filed herewith.
Φ			Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Maximus, Inc.

	/s/ Bruce L. Caswell	~~February 9,~~May 4, 2023
By:	Bruce L. Caswell
	President and Chief Executive Officer
	(Principal Executive Officer)

	/s/ David W. Mutryn	~~February 9,~~May 4, 2023
By:	David W. Mutryn
	Chief Financial Officer
	(Principal Financial Officer)

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Table 7.1: Fair Value Measurements
	As of December 31, 2022
	Level 1		Level 2		Level 3		Balance
	(in thousands)
Assets:
Deferred compensation assets - Rabbi Trust	$	24,316	$	—	$	—	$	24,316
Interest rate swap - $300 million notional value	—		29,012		—		29,012
Total assets	$	24,316	$	29,012	$	—	$	53,328
Liabilities:
Interest rate swap - $200 million notional value	$	—	$	2,733	$	—	$	2,733
Contingent consideration	—		—		16,439		16,439
Total liabilities	$	—	$	2,733	$	16,439	$	19,172