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What changed in MAXIMUS, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of MAXIMUS, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+316 added−335 removedSource: 10-K (2023-11-16) vs 10-K (2022-11-22)

Top changes in MAXIMUS, INC.'s 2023 10-K

316 paragraphs added · 335 removed · 213 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

78 edited+26 added−38 removed21 unchanged
Biggest changeIn addition to competitive base wages, additional programs include incentive bonus opportunities, restricted stock units, company-matched 401(k) Plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, family care resources, flexible work schedules, employee assistance programs, and supplemental programs to support our employees' physical, mental, and financial well-being.
Biggest changeIn addition to competitive base wages, additional programs include incentive bonus opportunities, restricted stock units, performance stock units, company-matched 401(k) Plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, family care resources, flexible work schedules, employee assistance programs, and supplemental programs to support our employees’ physical, mental, and financial well-being. 11 Table of Contents During fiscal year 2023, we made significant improvements to the employee value proposition in the U.S., introducing a preferred provider organization plan with lower deductibles for all employees, and further lowering the deductible for our most populated service contract medical plan to make healthcare more accessible for our mission-critical employees.
Services Segment provides a variety of BPS such as program administration, appeals and assessments, and related consulting work for U.S. state and local government programs. These services support a variety of programs, including ACA, Medicaid, the Children's Health Insurance Program ("CHIP"), Temporary Assistance to Needy Families ("TANF"), and child support programs.
Services Segment provides a variety of 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 ACA, Medicaid, the Children's Health Insurance Program ("CHIP"), Temporary Assistance to Needy Families ("TANF"), and child support programs.
In the event that we have significant cash outlays at the commencement of projects or where delays in payments result in short-term working capital needs, we may borrow up to $600 million through a credit agreement with JPMorgan Chase N.A. (the Credit Agreement), subject to standard covenants.
In the event that we have significant cash outlays at the commencement of projects or where delays in payments result in short-term working capital needs, we may borrow up to $600 million through a credit agreement with JPMorgan Chase Bank N.A. (the "Credit Agreement"), subject to standard covenants.
Running our Business Ethically and with Integrity Our commitment to conduct our business ethically and with integrity extends to our responsibility to respect human rights as guided by international human rights principles. It is our duty to conduct our business through responsible workplace practices as described in the Maximus Human Rights Principles, available at www.maximus.com .
Running our Business Ethically and with Integrity Our commitment to conduct our business ethically and with integrity extends to our responsibility to respect human rights as guided by international human rights principles. It is our duty to conduct our business through responsible workplace practices as described in the Maximus Human Rights Principles, available at maximus.com .
These include person-centered independent disability, long-term sick, and other health assessments, including those related to long-term services and supports such as Preadmission Screening and Resident Reviews ("PASRR") and Independent Developmental Disability ("IDD") assessments. We are a leading provider of such services in the U.S. In addition, we provide connected wellness services which promote healthy living habits amongst participants. Employment Services.
These include person-centered independent disability, long-term sick, and other health assessments, including those related to long-term services and supports such as Preadmission Screening and Resident Reviews ("PASRR") and Independent Developmental Disability ("IDD") assessments. We are a leading provider of such services in the U.S. In addition, we provide connected wellness services which promote healthy living habits among participants. Employment Services.
Our Information Security Office is led by the Chief Information Security Officer to provide oversight over the Company's security obligations, as well as a Privacy Office under the Privacy Official to provide oversight over our privacy obligations within these contracts.
Our Information Security Office is led by the Chief Information Security Officer to provide oversight over the Company's security obligations, as well as a Privacy Office under the Chief Privacy Officer to provide oversight over our privacy obligations within these contracts.
The complex nature of competitive bidding, qualifying criteria related to past performance, the required investment in subject-matter expertise, repeatable processes and support infrastructure, and the need to achieve specific program outcomes creates barriers to entry for potential new competitors unfamiliar with the nature of government procurement.
The complex nature of competitive bidding, qualifying criteria related to past performance, the required investment in subject-matter expertise, repeatable processes and support infrastructure, and the need to achieve specific program outcomes create barriers to entry for potential new competitors unfamiliar with the nature of government procurement.
Also aligned with our strategic focus, and benefiting from the Attain platform, the Technology and Consulting Services ("TCS") division 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.
Also aligned with our strategic focus, and benefiting from the Attain platform, the TCS division 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.
Federal Services Segment generated 49% of our total revenue in fiscal year 2022. 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.
Federal Services Segment generated 49% of our total revenue in fiscal year 2023. 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.
We offer clients the flexibility and scalability to deliver the people, processes, and technology to complete short- and long-term contractual assignments in an efficient and cost-effective manner. 10 Table of Contents Financial strength. Our business provides us with robust cash flows from operations as a result of our profitability and our management of customer receivables.
We offer clients the flexibility and scalability to deliver the people, processes, and technology to complete short- and long-term contractual assignments in an efficient and cost-effective manner. Financial strength. Our business provides us with robust cash flows from operations as a result of our profitability and our management of customer receivables.
Expertise in competitive bidding . Government agencies typically award contracts through a comprehensive, complex, and competitive request for proposals ("RFP") and bidding process. Although the bidding criteria varies from contract to contract, typical contracts are awarded based upon a mix of technical solution and price. In some cases, governments award points for past performance tied to program outcomes.
Government agencies typically award contracts through a comprehensive, complex, and competitive request for proposals ("RFP") and bidding process. Although the bidding criteria varies from contract to contract, typical contracts are awarded based on a mix of technical solution and price. In some cases, governments award points for past performance tied to program outcomes.
TCS has also built digital qualifications in the market. The division utilizes artificial intelligence and machine learning to build bespoke data models, providing predictive analytics to maximize process efficiency, as well as identify systemic process issues that can be isolated and prioritized for troubleshooting.
TCS has also built digital qualifications in the market. The division utilizes AI and machine learning to build bespoke data models, providing predictive analytics to maximize process efficiency, as well as identify systemic process issues that can be isolated and prioritized for troubleshooting.
Our teams continue to adapt to the recruiting, hiring, and training needs of our customers in both remote and onsite settings to ensure continuity of vital services. 11 Table of Contents Talent Development We value ongoing development and continuous learning, and we strive to support and provide learning opportunities to all Maximus employees.
Our teams continue to adapt to the recruiting, hiring, and training needs of our customers in both remote and onsite settings to ensure continuity of vital services. Talent Development We value ongoing development and continuous learning, and we strive to support and provide learning opportunities to all Maximus employees.
Our primary competitors in this segment include Atos, Capita, Optum, Serco, Staffline, Shaw Trust, Ingeus, Sarina Russo, Advanced Personnel Management, IBM, Telus-Health, NTT Data, Pacific Blue Cross, and other specialized private companies and nonprofit organizations.
Our primary competitors in this segment include Atos, Capita, Serco, Staffline, Shaw Trust, Ingeus, Sarina Russo, Advanced Personnel Management, IBM, Telus-Health, NTT Data, Pacific Blue Cross, Sawaeed, Takamol, and other specialized private companies and nonprofit organizations.
End-to-end automation of software development and business processes achieves speed, efficiency, and error reduction as well as advanced tool capabilities resulting in greater operational efficiency, enhanced customer experiences, and increased ROI. Finally, high performance computing clusters support mission requirements for data mining, scientific modeling, advanced analytics, research, and machine learning.
End-to-end automation of software development and business processes achieves speed, efficiency, and error reduction, as well as advanced tool capabilities resulting in greater operational efficiency, enhanced customer experiences, and increased return on investment. Finally, high-performance computing clusters support mission requirements for data mining, scientific modeling, advanced analytics, research, and machine learning.
We also provide online learning tools that have role-based and skill-based paths to many of our employees. Total Rewards As part of our compensation philosophy, we offer and maintain market-competitive total rewards programs for our employees to attract and retain superior talent.
We also provide online role-based and skill-based learning tools to many of our employees. Total Rewards As part of our compensation philosophy, we offer and maintain market-competitive total rewards programs for our employees to attract and retain superior talent.
Given our deep experience, strong financial condition, and trusted brand reputation, we believe we are well-positioned with unique competitive advantages to meet an anticipated expanded need for our services and pent-up demand to help governments provide their citizens employment opportunities. Furthermore, this segment has historically benefited from increased caseloads in employment services programs during past economic downturns and recoveries.
Given our deep experience, strong financial condition, and trusted brand reputation, we believe we are well-positioned with unique competitive advantages to meet an anticipated expanded need for our services and pent-up demand to help governments provide their citizens employment opportunities. Furthermore, these services have historically benefited from increased caseloads in employment services programs during past economic downturns and recoveries.
Our SEC filings may be accessed through the Investor Relations page of our website. These materials, as well as similar materials for other SEC registrants, may be obtained directly from the SEC through its website at www.sec.gov . 14 Table of Contents
Our SEC filings may be accessed through the Investor Relations page of our website. These materials, as well as similar materials for other SEC registrants, may be obtained directly from the SEC through its website at sec.gov . 13 Table of Contents
For more information on our segment presentation and geographic distribution of our business, including comparative revenue, gross profit, operating income, identifiable assets, and related financial information for the 2022, 2021, and 2020 fiscal years, see "Note 3. Business Segments" within Item 8 of this Annual Report on Form 10-K. U.S. Federal Services Segment Our U.S.
For more information on our segment presentation and geographic distribution of our business, including comparative revenue, gross profit, operating income, identifiable assets, and related financial information for the 2023, 2022, and 2021 fiscal years, see "Note 3. Business Segments" within Item 8 of this Annual Report on Form 10-K. 5 Table of Contents U.S. Federal Services Segment Our U.S.
TCS's core capabilities build further upon our cloud-based solutions and include: • Application development & modernization: Modernize, develop, and deliver solutions utilizing automation, agile, and DevSecOps practices. • Enterprise Business Solutions: Integrate and manage disparate business processes and systems. • Advanced Analytics & Emerging Technologies: Provide technology services to leverage and integrate the latest technologies for AI and machine learning, automation, and high-performance computing. • Cybersecurity: Deliver full spectrum cybersecurity services, including cyber engineering and operations, digital forensics, and incident response. • Infrastructure and Engineering: Deploy solutions that leverage cloud-hosted and on-premise designs to optimize costs.
TCS's core capabilities build further upon our cloud-based solutions and include: • Application development & modernization: Modernize, develop, and deliver solutions utilizing automation, agile, and development, security, and operations (DevSecOps) practices. • Enterprise Business Solutions: Integrate and manage disparate business processes and systems. • Advanced Analytics & Emerging Technologies: Provide technology services to leverage and integrate the latest technologies for AI/ML, automation, and high-performance computing. 6 Table of Contents • Cybersecurity: Deliver full spectrum cybersecurity services, including cyber engineering and operations, digital forensics, and incident response. • Infrastructure and Engineering: Deploy solutions that leverage cloud-hosted and on-premise designs to optimize costs.
We believe that-near term growth should also be realized as a result of the Promise to Address Comprehensive Toxics Act of 2022 ("PACT") Act, passed in August 2022. The PACT Act expands certain conditions under which veterans would presumptively qualify for benefits and would result in increases in MDE volumes.
We believe that near-term growth should also be realized as a result of the Promise to Address Comprehensive Toxics Act of 2022 ("PACT") Act, which was passed by the U.S. Congress in August 2022. The PACT Act expands certain conditions under which veterans should presumptively qualify for benefits and would result in increases in MDE volumes.
A leading provider of MDEs, VES brings a deep and longstanding relationship with the VA, as well as a team of experienced clinicians focused on serving veterans.
A leading provider of MDEs, VES brings a deep and long-standing relationship with the VA, as well as a team of experienced clinicians focused on serving veterans.
We also made great strides in closing the gender and ethnicity pay gap, instituting an annual review to identify and close any new or persistent unsubstantiated differences in pay between our employees. We improved the hourly wage in fiscal year 2022 to at least $15 an hour for approximately 95% of our U.S. population.
We also made great strides in closing the gender and ethnicity pay gap, instituting an annual review to identify and close any new or persistent unsubstantiated differences in pay between our employees. We improved the hourly wage in fiscal year 2023 to at least $16.20 an hour for approximately 90% of our U.S. population.
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.
Segment provides BPS for international governments, 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 continue to refine our focus on recruiting employees from under-represented and historically excluded groups, People of Color, and military Veterans at all levels of the organization to better reflect the populations we serve. Employee Engagement Our employees are essential, and their well-being is paramount.
We continue to refine our focus on recruiting a wide array of talented employees, including from under-represented and historically excluded groups and military veterans at all levels of the organization, to better reflect the populations we serve. Employee Engagement Our employees are essential, and their well-being is paramount.
Given the nature of our business, we do not currently anticipate that the costs of complying with, or the liabilities associated with, environmental laws will materially affect us. However, we cannot ensure that we will not incur material costs or liabilities in the future.
Given the nature of our business, we do not currently anticipate that the costs of complying with, or the liabilities associated with, environmental laws and regulations will materially affect us. However, we cannot ensure that we will not incur material costs or liabilities in the future. Government Regulations Our business is heavily regulated.
Within the technology sector, our primary competitors are IBM, Oracle, Leidos, Accenture, Deloitte, Booz Allen Hamilton, and other federal contractors. 7 Table of Contents U.S. Services Segment Our U.S. Services Segment generated 35% of our total revenue in fiscal year 2022. Our U.S.
Within the technology sector, our primary competitors are IBM, Oracle, Leidos, Accenture, Deloitte, Booz Allen Hamilton, and other federal contractors. U.S. Services Segment Our U.S. Services Segment generated 37% of our total revenue in fiscal year 2023. Our U.S.
While our independent clinical assessments business has been growing at the state level (through our previous acquisition of Ascend and subsequent organic growth), VES' expertise provides a platform of scale for the first time at the Federal level.
While our independent clinical assessments business has been growing at the state level (through our previous acquisition of Ascend Management Innovations, LLC in 2016 and subsequent organic growth), VES' expertise provides a platform of scale for the first time at the U.S. federal government level.
We believe the current market environment for our services positions us to benefit from continued demand across all of our geographies in service areas such as operations program management and independent health and benefit assessments.
We believe the current market environment for our services positions us to benefit from continued demand across all of our geographies in service areas such as operations program management and independent health and benefit assessments. Overall, we expect the underlying demand for our services to increase over the next several years. Decentralization.
Our recruiting programs focus on identifying and evaluating talent through practices that welcome a diverse workforce, including people with disabilities, language barriers, and those from varying socioeconomic backgrounds. Demand for talent is highly competitive, with additional pressures influenced by the pandemic. We continue to invest in our employees through a variety of benefits and overall program enhancements.
Our recruiting programs focus on identifying and evaluating talent through practices that welcome a diverse workforce, including people with disabilities, language barriers, and those from varying socioeconomic backgrounds. We continue to invest in our employees through a variety of benefits and overall program enhancements.
Maximus is committed to an environment where open, honest communications are the expectation, not the exception. We want employees to feel comfortable in approaching a supervisor or anyone in management in instances where they believe violations of policies or standards have occurred. By creating open channels of communication, we aim to promote a positive work environment.
We want employees to feel comfortable in approaching a supervisor or anyone in management in instances where they believe violations of policies or standards have occurred. By creating open channels of communication, we aim to promote a positive work environment.
It should not be relied upon for investment purposes, nor is it incorporated by reference into this Annual Report on Form 10-K. 13 Table of Contents We make our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and the proxy statement for our annual shareholders' meeting, as well as any amendments to those reports, available free of charge through our website as soon as reasonably practical after we file that material with, or furnish it to, the Securities and Exchange Commission ("SEC").
We make our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and the proxy statement for our annual shareholders' meeting, as well as any amendments to those reports, available free of charge through our website as soon as reasonably practical after we file that material with, or furnish it to, the Securities and Exchange Commission ("SEC").
These services help governments engage with program recipients while at the same time help them improve the efficiency, cost-effectiveness, quality, and accountability of their health and disability benefits programs.
The growth of our clinical services demonstrates successful execution of our continued strategy and focus on clinical services. These services help governments engage with program recipients while at the same time helping them improve the efficiency, cost-effectiveness, quality, and accountability of their health and disability benefits programs.
The HAAS contract is a hybrid contract with cost-plus elements coupled with a number of incentives and penalties to achieve the programmatic outcomes defined by the government in order to ensure quality and timeliness of service to our customers.
On these contracts, we are typically reimbursed for each transaction. The HAAS contract is a hybrid contract with cost-plus elements coupled with a number of incentives and penalties to achieve the programmatic outcomes defined by the government in order to ensure quality and timeliness of service.
Our focus is solely on supporting the student borrowers on behalf of FSA. 6 Table of Contents The manner in which we provide these services varies from contract to contract but may include a mix of contact centers, mail-room operations, and mobile and website media. Clinical Services.
Our focus is solely on supporting the student borrowers on behalf of FSA. Aidvantage is an extension of long-standing work supporting student loan management and is in line with our core business. The manner in which we provide these services varies from contract to contract but may include a mix of contact centers, mail-room operations, and mobile and website media.
Governments outside the U.S. are seeking to improve government-sponsored health and human services programs, manage increasing caseloads, and contain costs. We have an established presence in the U.K., Australia, Canada, Saudi Arabia, Singapore, Italy, Sweden, South Korea, and UAE. Our international efforts are focused on delivering cost-effective welfare-to-work and health benefits services to program participants on behalf of governments.
Governments outside the U.S. are seeking to improve government-sponsored health and human services programs, manage increasing caseloads, and contain costs. We have an established international presence, focused on delivering cost-effective welfare-to-work and health benefits services to program participants on behalf of governments. 10 Table of Contents Expertise in competitive bidding .
Other fluctuations may arise from changes in programs directed by our clients and activity related to contract life cycles. Contracts with government clients often contain "termination without cause" provisions.
The segment may experience seasonality due to transaction-based work, such as program open enrollment periods. Other fluctuations may arise from changes in programs directed by our clients and activity related to contract life cycles. Contracts with government clients often contain "termination without cause" provisions.
In some areas of our business, notably contracts with the U.S. federal government, there are requirements for bidders seeking contracts to be pre-approved on registered contract vehicles, further limiting the pool of competitors. Human Resources As of September 30, 2022, we had approximately 39,500 employees and 12,550 contingent workers, consisting of 18,500 employees in our U.S.
In some areas of our business, notably contracts with the U.S. federal government, there are requirements for bidders seeking contracts to be pre-approved on registered contract vehicles, further limiting the pool of competitors. Human Resources We move people forward.
Employment services cover a number of attributes, including eligibility support, case management, job-readiness preparation, job search and employer outreach, job retention and career advancement, and selected educational and training services, including vocational training. Maximus supports 14 states and their efforts with unemployment insurance. These contracts were initially procured in response to the COVID-19 pandemic, but have transitioned into long-term programs.
Employment services cover a number of attributes, including eligibility support, case management, job-readiness preparation, job search and employer outreach, job retention and career advancement, and selected educational and training services, including vocational training. Maximus also supports unemployment insurance programs, a market which largely began in response to the COVID-19 pandemic.
We consider ourselves to be a significant competitor in the markets in which we operate as we are one of the largest providers of Medicaid and CHIP administrative programs and operate many of the state-based health insurance exchanges. Outside the U.S. Segment Our Outside the U.S. Segment generated 16% of our total revenue in fiscal year 2022.
We are one of the largest providers of Medicaid and CHIP administrative programs and operate many of the state-based health insurance exchanges. 8 Table of Contents Outside the U.S. Segment Our Outside the U.S. Segment generated 14% of our total revenue in fiscal year 2023. Our Outside the U.S.
Our commitment to making Maximus an employer of choice is not a new goal, and we continue to prioritize attracting, retaining, developing, and empowering employees as a central part of our plan for achieving future growth. More information on our Human Resource priorities is included below. Our Business Segments We operate our business through three segments: U.S. Federal Services, U.S.
We also continue to focus on our people - the foundation of our strategy. Our commitment, as an employer of choice, is to continue to prioritize attracting, retaining, developing, and empowering employees as a central part of our plan for achieving future growth. More information on our human resource priorities is included below.
We provide financial support for nonprofit organizations and charities that share our commitment in helping disadvantaged populations and underserved communities. Other Information Maximus, Inc. is a Virginia corporation founded in 1975. Our principal executive offices are located at 1600 Tysons Boulevard, McLean, Virginia, 22102. Our telephone number is 703-251-8500. Our website address is www. maximus.com .
Other Information Maximus, Inc. is a Virginia corporation founded in 1975. Our principal executive offices are located at 1600 Tysons Boulevard, McLean, Virginia, 22102. Our telephone number is 703-251-8500. Our website address is maximus.com . We make our website available for informational purposes only.
The Board of Directors Technology Committee provides oversight with respect to our global IT, including, but not limited to, IT infrastructure, product development, digital services portfolio, cybersecurity, IT aspects of mergers and acquisitions, and intellectual property protection. Maximus uses various technological and procedural security measures in order to protect the personal information we collect from loss, misuse, alteration, or destruction.
The Board of Directors’ Technology Committee provides oversight with respect to our global information technology, including, but not limited to, strategic investments, cybersecurity, and protection of data assets. Maximus uses various technological and procedural security measures in order to protect confidential or protected information from loss, misuse, alteration, or destruction.
In line with our strategic focus for the future, the segment continues to expand its clinical solutions. This is evident in the acquisition of VES, which manages the clinical evaluation process for U.S. veterans and service members on behalf of the VA and the clinical offerings in public health including work supporting the federal government's COVID-19 response efforts.
Clinical Services. In line with our strategic focus for the future, the segment continues to expand its clinical solutions, most notably through VES, which manages the clinical evaluation process for U.S. veterans and service members on behalf of the VA.
Although the basis for competition varies from contract to contract, we believe that typical contracts are awarded based upon a mix of comprehensive solution and price.
Although the basis for competition varies from contract to contract, we believe that typical contracts are awarded based upon a mix of comprehensive solutions and prices. In some cases, clients award points for past performance tied to program outcomes.
More information on how each of our business segments align with the execution of our strategy is provided below. Across all segments, there is a common focus on optimizing processes and simplifying our structure. We also continue to focus on our people - the foundation of our strategy.
Further our credibility as a technology leader, enabling the transformation of government programs to be resilient, dynamic, integrated, and equitable. More information on how each of our business segments align with the execution of our strategy is provided below. Across all segments, there is a common focus on optimizing processes and simplifying our structure.
We also provide system implementation project management services to state and local clients, giving our customers peace of mind that their business requirements have been met on time and within budget. Consistent with our overall corporate strategy, technology solutions in our U.S. Services Segment is an area of focus for growth.
We also provide system implementation project management services to state and local clients. Consistent with our overall corporate strategy, technology solutions in our U.S. Services Segment is an area of focus for growth. The rest of the segment's revenue is from specialized consulting services.
We are focused on building and sustaining a diverse, equitable, and inclusive culture through a variety of initiatives, including implementing international and strategic hiring, internal development, promotions, and retention practices.
We assert that an equitable and inclusive environment with diverse teams produces creative solutions, innovative products and services, and attracts and retains key talent. We are focused on building and sustaining a diverse, equitable, and inclusive culture through a variety of initiatives, including implementing international and strategic hiring, internal development, and promotion and retention practices.
Federal Services Segment, we must also comply with the Federal Acquisition Regulations ("FAR"), which regulates the procurement, award, administration, and performance of U.S. government contracts. Outside the U.S., we must also comply with local laws and regulations as determined by geography, as well as U.S. government laws. Adherence includes human rights protections, environmental regulation, and contract specifications.
In the U.S., we must adhere to local, state, and federal laws and regulations. Within the U.S. Federal Services Segment, we must also comply with the Federal Acquisition Regulations ("FAR"), which regulates the procurement, award, administration, and performance of U.S. government contracts.
Many federal agencies must address the maintenance of legacy IT systems and the pressing need for IT infrastructure modernization continues to grow. Legacy processes and systems are fundamental to government operations, yet they are expensive to operate in an environment that requires online agility and rapid response to new demands, requirements, and global challenges.
Legacy processes and systems are fundamental to government operations, yet they are expensive to operate in an environment that requires online agility and rapid response to new demands, requirements, and global challenges. We are delivering and supporting the priorities set by the Federal Chief Information Officer: cybersecurity, IT modernization, and customer service and customer experience.
In 2022, we successfully sourced and employed more than 2,500 persons with disabilities in the U.S. 70% of our U.S. hires were People of Color, and over 75% of our total U.S. hires were women.
In 2023, we successfully sourced and hired more than 1,700 persons with disabilities in the U.S. who have self-disclosed this information. 76% of our U.S. hires were People of Color, and over 77% of our total U.S. hires were women.
We expect to realize and deliver on higher volumes related to the PACT Act beginning in fiscal year 2023. The independent health and disability assessments and appeals portion of our business will comprise a larger share of our overall portfolio, lending further credibility to our organic growth efforts with other Federal departments and in non-Federal markets.
The independent health and disability assessments and appeals portion of our business is a growing part of our overall portfolio, lending further credibility to our organic growth efforts with other Federal departments and in non-Federal markets. Technology Solutions.
Employment Services. Comprehensive employment services help vulnerable individuals transition from government assistance programs to sustainable employment and economic independence. These services cover a number of attributes, including eligibility determination, case management, job-readiness preparation and work capability assessments, job search and employer outreach, job retention and career advancement, and selected educational and training services.
These services cover a number of attributes, including eligibility determination, case management, job-readiness preparation and work capability assessments, job search and employer outreach, job retention and career advancement, and selected educational and training services. Payment terms are typically focused on achieving employment outcomes. Clinical Services. Clinical services includes appeals and assessments work.
We strive to be champions for an inclusive and collaborative culture that is free from discrimination and harassment, where everyone is treated with respect and dignity.
We strive to be champions for an inclusive and collaborative culture that is free from discrimination and harassment, where everyone is treated with respect and dignity. Our expectation is that Maximus and its employees always conduct business according to the highest standards of ethics and performance and in compliance with all applicable laws.
Our expectation is that Maximus and its employees always conduct business according to the highest standards of ethics and performance and in compliance with all applicable laws. 12 Table of Contents Maximus has a confidential, third-party-operated, 24/7 reporting ethics hotline. Violations of our ethics standards and policies are taken seriously and include remediation processes and disciplinary action, as applicable.
Maximus has a confidential, third-party-operated, 24/7 reporting ethics hotline. Violations of our ethics standards and policies are taken seriously and include remediation processes and disciplinary action, as applicable. Any director, officer, or employee may anonymously report suspected violations of the Maximus Standards for Business Conduct and Ethics, Company policies, or applicable laws and regulations.
Our government clients have strict policies, procedures, and requirements in the procurement process, as well as regulations governing contract pricing and reimbursable costs. Community Involvement We aim to give back to the communities where we live and work and believe that this commitment helps in our efforts to attract and retain employees.
Community Involvement We aim to give back to the communities where we live and work and believe that this commitment helps in our efforts to attract and retain employees. We offer employees the opportunity to give back through the Maximus Foundation.
Further, President Biden has indicated that his healthcare platform will use the foundation of the ACA to expand access, lower costs, and simplify the process for individuals and families.
This was particularly evident in the federal government's Public Health Emergency, which increased Medicaid funding to states that allowed ongoing eligibility of benefits. 9 Table of Contents President Biden has indicated that his healthcare platform will use the foundation of the ACA to expand access, lower costs, and simplify the process for individuals and families.
As a leading player in many of the health program administration markets that we serve, we believe we are one of the largest providers of Medicaid enrollment services in the U.S and that we are a leading provider of CHIP services and state-based health insurance exchange operations. Clinical Services.
As a leading supplier in many of the health program administration markets that we serve, we are the largest provider of Medicaid eligibility support and enrollment services and state-based health insurance exchange operations. 7 Table of Contents Clinical Services. Clinical services include our independent appeals and person-centered assessment services, primarily under Medicaid Long-Term Care.
Federal Government agencies, 35% from U.S. state government agencies, 16% from foreign government agencies, and the balance from other sources, including local municipalities and commercial customers.
For the year ended September 30, 2023, approximately 48% of our revenue was derived from U.S. federal government agencies, 37% from U.S. state government agencies, 14% from foreign government agencies, and the balance from other sources, including local municipalities and commercial customers.
As different geographies emerge from the pandemic, we are cautiously optimistic that new opportunities for expanded employment services programs will materialize.
We believe that these changes to funding and government mechanics allow state and local authorities enhanced flexibility to shape their benefit programs. Unemployment. As different geographies emerge from the COVID-19 pandemic, we are cautiously optimistic that new opportunities for expanded employment services programs will materialize.
We offer employees the opportunity to give back through the Maximus Foundation. The Foundation focuses our grant giving to carefully selected partners who have the expertise and capability to enhance our communities and the quality of life of the people we serve.
The Foundation focuses our grant giving to carefully selected partners who have the expertise and capability to enhance our communities and the quality of life of the people we serve. We provide financial support for nonprofit organizations and charities that share our commitment in helping disadvantaged populations and underserved communities.
The rest of the segment's revenue is from specialized consulting services. These services include business process assessment and design, quality assurance processes, including independent verification and validation services as well as policy and procedure reviews, and audit preparation and compliance, including grant and proposal reviews.
These services include business process assessment and design, quality assurance processes, including independent verification and validation services as well as policy and procedure reviews, and audit preparation and compliance, including grant and proposal reviews. The segment also includes a tax credit service, which assists commercial customers in claiming workforce and location-based tax benefits.
The contract serves the U.S. population through eleven customer contact centers handling general inquiries for the marketplace and general and claims-based Medicare inquiries. In October 2021, we acquired the Navient student loan contract, rebranded as Aidvantage. We are an independent and conflict-free provider, as we will not provide loan origination, consolidation, or collection services.
In October 2021, we acquired the Navient student loan contract, rebranded as Aidvantage. We are an independent and conflict-free provider, as we will not provide loan origination, consolidation, or collection services. We view student loan servicing as an opportunity to apply our insights, expertise, and quality-driven approach through support for Federal Student Aid ("FSA") and student borrowers.
Employees understand our commitment to act with integrity, which is summarized in our Standards for Business Conduct and Ethics, which includes the confidential ethics hotline contact information and is available at www.maximus.com .
Employees understand our commitment to act with integrity, which is summarized in our Standards for Business Conduct and Ethics, which includes the confidential ethics hotline contact information and is available at maximus.com . 12 Table of Contents Cybersecurity Our government clients maintain the role as data owners and regulate access to and use of their data through extensive federal, state, and international privacy and data security laws requiring certain privacy protections and security safeguards.
In some cases, clients award points for past performance tied to program outcomes. 9 Table of Contents Economic and Market Environments In all the markets and locations in which we operate, we are seeing consistent themes that drive our long-term strategy. Investment in Technology.
Economic and Market Environments In all the markets and locations in which we operate, we are seeing consistent themes that drive our long-term strategy. Investment in Technology. Many federal agencies must address the maintenance of legacy IT systems, and the pressing need for IT infrastructure modernization continues to grow.
We anticipate future changes to this operating model as states evaluate options such as replacing staff, retaining contractors, and implementing technology. We believe that these changes to funding and government mechanics allow state and local authorities enhanced flexibility to shape their benefit programs. Unemployment.
The U.S. federal government recently clarified federal regulations that now allow states the flexibility to use contractors to help agencies provide services. We anticipate future changes to this operating model as states evaluate options such as replacing staff, retaining contractors, and implementing technology.
The segment may experience fluctuations as a result of volume variations or program maturity, with contracts recording lower revenue and profitability during program startup. Our primary competitors in the U.S. Federal Services Segment are Serco, General Dynamics Information Technology, Amentum, Cognosante, and Conduent.
The segment may experience fluctuations as a result of volume variations or program maturity, with contracts recording lower revenue and profitability during program startup. Contracts with government clients often contain "termination without cause" provisions.
In fiscal year 2022, our contract with the Centers for Medicare and Medicaid to support the Contact Center Operations ("CCO") was renewed. This contract supports the federal marketplace under the ACA and serves as the primary support engagement center for Medicare, also known as 1-800-MEDICARE.
This contract supports the federal marketplace under the Affordable Care Act ("ACA") and serves as the primary support engagement center for Medicare, also known as 1-800-MEDICARE. The contract serves the U.S. population through twelve customer contact centers handling general inquiries for the marketplace and general and claims-based Medicare inquiries.
Any director, officer, or employee may anonymously report suspected violations of the Maximus Standards of Business Conduct and Ethics, Company policies, or applicable laws and regulations. The ethics hotline is a comprehensive and confidential reporting tool to assist management and employees in working together to address any type of misconduct in the workplace.
The ethics hotline is a comprehensive and confidential reporting tool to assist management and employees in working together to address any type of misconduct in the workplace. Maximus is committed to an environment where open, honest communications are the expectation, not the exception.
The Board of Directors' Nominating and Governance Committee has oversight responsibility for Environment, Social, and Governance ("ESG") matters, which includes climate-related risks and opportunities. Government Regulations Our business is heavily regulated. In the U.S., we must adhere to local, state, and federal laws and regulations. Within the U.S.
We have documented Information Security and Privacy policies to address data protection. We regularly provide information security and privacy awareness training to our employees. Environment The Board of Directors' Nominating and Governance Committee has oversight responsibility for Environmental, Social, and Governance ("ESG") matters, which includes climate-related risks and opportunities.
Our employment services contracts typically have outcome-based payments in an effort to incentivize providers to ensure that we help job seekers find long-term sustained employment and achieve economic independence. The segment may experience seasonality due to transaction-based work, such as program open enrollment periods.
Most contracts include a level of performance-based compensation, a fixed fee, or a mixture of both, with fees being based upon call volumes, populations served, or appeals processed. Our employment services contracts typically have outcome-based payments in an effort to incentivize providers to ensure that we help job seekers find long-term, sustained employment and achieve economic independence.
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 at delivering clinical BPS at scale.
Elevate the customer experience to achieve higher levels of satisfaction, performance, and outcomes through intelligent automation and cognitive computing. • Future of Health. Help governments reach the rising demand for health services by growing our clinical capabilities to improve the health of people and their communities. • Advanced Technologies for Modernization .
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 Disability Employment Service; Canada, including Health Insurance British Columbia and the Employment Program of British Columbia; in addition to Italy, Saudi Arabia, Singapore, South Korea, Sweden, and UAE, where we predominantly provide employment support and job seeker services.
We support programs and deliver services in the United Kingdom ("U.K."), including the Health Assessment Advisory Service ("HAAS") and the recently awarded replacement contract to start in 2024, Functional Assessment Services (“FAS”), and Restart; Australia, including Workforce Australia and employment support and job seeker services worldwide.
These values are a mix of our current beliefs and our aspirations, illustrating how we can execute our strategic objectives and look for opportunities of growth. Talent Acquisition Our success depends in large part on our ability to attract talent globally to meet the needs of our customers and comply with our contracts.
Services Segment, 7,600 employees in the Outside the U.S. Services Segment, and 1,500 corporate administrative employees. Talent Acquisition Our success depends in large part on our ability to attract talent globally to meet the needs of our customers and comply with our contracts.
Some contracts are performed on a cost-plus basis, where we receive revenue based upon the hours and costs incurred and typically operate at lower margins. Most contracts include a level of performance-based compensation, a fixed fee, or a mixture of both, with fees being based upon call volumes, populations served, or appeals processed.
Payment for our services varies from contract to contract based upon factors such as the priorities of the customer and their willingness to share risks and rewards. Some contracts are performed on a cost-plus basis, where we receive revenue based on the hours and costs incurred and typically operate at lower margins.
We are delivering and supporting the priorities set by the Federal CIO: Cybersecurity, IT modernization, and customer service and customer experience. By aligning our priorities with that of the government, we believe that we are well-positioned to meet agency change and to provide enterprise-wide solutions and strategies. Public Health Emergency.
By aligning our priorities with the U.S. federal government, we believe that we are well-positioned to meet agency change and to provide enterprise-wide solutions and strategies, both in the U.S. and elsewhere. Helping Governments. We believe that effectively managing healthcare costs, as well as improving quality and access to healthcare, is a major policy priority for governments.
We also developed a plan to get the remaining contracts to that internal minimum wage and ultimately to a living wage. Diversity and Inclusion We assist some of the most vulnerable individuals and families each day. Diversity, equity, and inclusion are central to our company identity.
Diversity and Inclusion We assist some of the most vulnerable individuals and families who experience vulnerability, marginalization, and social exclusion each day. Diversity, equity, and inclusion are central to our company identity. We are proud to contribute to and positively impact our communities by treating every person we serve and each other with dignity and respect.
The segment also contains certain state-based assessments and appeals work that is part of the segment's heritage within the Medicare Appeals portfolio. Program Operations. Program Operations include business process services, eligibility and enrollment, outreach, and other services for federal health and human services programs.
This segment also includes appeals and assessments services, system and application development, Information Technology ("IT") modernization, and maintenance services. Certain state-based assessments and appeals work that is part of the segment's heritage continues to be managed within this segment.
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Item 1. Business General We are a leading operator of government health and human services programs and provider of technology solutions to governments. We are a responsible and reliable contracting partner to governments under our mission of Moving People Forward . Governments rely on our financial stability and proven expertise in helping people connect and use critical government programs.
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Item 1. Business General Maximus, under its mission of Moving People Forward, helps millions of people access the vital government services they need. With over 45 years of experience working with local, state, federal, and international government clients, we proudly design, develop, and deliver innovative and impactful programs that change lives.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeMany of our government contracts contain base periods of one or more years, as well as option periods covering more than half of the contract's potential duration. Government agencies do not have to exercise these option periods, and they may elect not to exercise them for budgetary, performance, or any other reason.
Biggest changeGovernment entities have in the past terminated and may, in the future, terminate their contracts with us earlier than we expect, which may result in revenue shortfalls and unrecovered costs. Many of our government contracts contain base periods of one or more years, as well as option periods covering more than half of the contract's potential duration.
To facilitate our ability to prepare bids in response to RFPs, we rely in part on establishing and maintaining relationships with officials of various government entities and agencies. These relationships enable us to provide informal input and advice to the government entities and agencies prior to the development of an RFP.
To facilitate our ability to prepare bids in response to RFPs, we rely in part on establishing and maintaining relationships with officials of various government entities and agencies. These relationships enable us to provide informal input and advice to government entities and agencies prior to the development of an RFP.
Factors that may cause our cash flows and results of operations to vary from quarter to quarter include: • the terms and progress of contracts; • caseloads and other factors where revenue is derived on transactional volume on contracts; • the levels of revenue earned and profitability of fixed-price and performance-based contracts; • expenses related to certain contracts which may be incurred in periods prior to revenue being recognized; • increasing rates of inflation which may increase our costs of labor and other goods and services; • the commencement, completion, or termination of contracts during any particular quarter; • the schedules of government agencies for awarding contracts; • government budgetary delays or shortfalls; • the timing of change orders being signed; • the terms of awarded contracts; and • potential acquisitions.
Factors that may cause our cash flows and results of operations to vary from quarter to quarter include: • the commencement of new contracts; • caseloads and other factors where revenue is derived on transactional volume on contracts; • the levels of revenue earned and profitability of fixed-price and performance-based contracts; • expenses related to certain contracts which may be incurred in periods prior to revenue being recognized; • increasing rates of inflation, which may increase our costs of labor and other goods and services; • the commencement, completion, or termination of contracts during any particular quarter; • the schedules of government agencies for awarding contracts; • government budgetary delays or shortfalls; • the timing of change orders being signed; • the terms of awarded contracts; and • potential acquisitions.
Moreover, under current law, in order to privatize certain functions of government programs, the U.S. federal government must grant a consent and/or waiver to the petitioning state or local agency.
Moreover, under current law, in order to privatize certain functions of government programs, the U.S. federal government must grant consent and/or waiver to the petitioning state or local agency.
As a result, a significant portion of our business operations are subject to foreign financial, tax, and business risks which could arise in the event of: • foreign currency exchange fluctuations; • unexpected increases in tax rates or changes in U.S. or foreign tax laws; • non-compliance with international laws and regulations, such as data privacy, employment regulations, and trade barriers; • non-compliance with U.S. laws affecting the activities of U.S. companies in international locations, including the Foreign Corrupt Practices Act; • local restrictions pertaining to the COVID-19 pandemic that could disrupt our business operations; • the absence in some jurisdictions of effective laws to protect our intellectual property rights; • new regulatory requirements or changes in local laws that materially affect the demand for our services or directly affect our foreign operations; • local economic and political conditions, including severe or protracted recessions in foreign economies and inflation risk; • the length of payment cycles and potential difficulties in collecting accounts receivable; • difficulty managing and communicating with teams outside the U.S.; • unusual or unexpected monetary exchange controls, price controls, or restrictions on transfers of cash; or • civil disturbance, terrorism, or other catastrophic events that reduce business activity in other parts of the world.
As a result, a significant portion of our business operations are subject to foreign financial, tax, and business risks which could arise in the event of: • foreign currency exchange fluctuations; • unexpected increases in tax rates or changes in U.S. or foreign tax laws; • non-compliance with international laws and regulations, such as data privacy, employment regulations, and trade barriers; • non-compliance with U.S. laws affecting the activities of U.S. companies in international locations, including the Foreign Corrupt Practices Act; • the absence in some jurisdictions of effective laws to protect our intellectual property rights; • new regulatory requirements or changes in local laws that materially affect the demand for our services or directly affect our foreign operations; • local economic and political conditions, including severe or protracted recessions in foreign economies and inflation risk; • the length of payment cycles and potential difficulties in collecting accounts receivable; • difficulty managing and communicating with teams outside the U.S.; • unusual or unexpected monetary exchange controls, price controls, or restrictions on transfers of cash; or • civil disturbance, terrorism, or other catastrophic events that reduce business activity in other parts of the world.
These factors may lead to decreased revenues and profits, which could adversely affect our business, financial condition, and results of operations. 23 Table of Contents Inaccurate, misleading, or negative media coverage could adversely affect our reputation and our ability to bid for government contracts.
These factors may lead to decreased revenues and profits, which could adversely affect our business, financial condition, and results of operations. 22 Table of Contents Inaccurate, misleading, or negative media coverage could adversely affect our reputation and our ability to bid for government contracts.
Our inability to hire sufficient personnel on a timely basis or the loss of significant numbers of executive officers and senior managers could adversely affect our business. 21 Table of Contents Government unions may oppose outsourcing of government programs to outside vendors such as us, which could limit our market opportunities and could impact us adversely.
Our inability to hire sufficient personnel on a timely basis or the loss of significant numbers of executive officers and senior managers could adversely affect our business. Unions may oppose outsourcing of government programs to outside vendors such as us, which could limit our market opportunities and could impact us adversely.
In addition to these factors, poor execution on project startups could impact us by increasing our use of cash. In certain circumstances, we may defer recognition of costs incurred at the inception of a contract. That deferral assumes we will be able to recover these costs over the life of the contract.
In addition to these factors, poor execution on project start-ups could impact us by increasing our use of cash. In certain circumstances, we may defer recognition of costs incurred at the inception of a contract. That deferral assumes we will be able to recover these costs over the life of the contract.
We may or may not be able to recover all the costs incurred during the startup phase of a terminated contract. The unexpected termination of significant contracts could result in significant revenue shortfalls. If revenue shortfalls occur and are not offset by corresponding reductions in expenses, our business could be adversely affected.
We may or may not be able to recover all the costs incurred during the start-up phase of a terminated contract. The unexpected termination of significant contracts could result in significant revenue shortfalls. If revenue shortfalls occur and are not offset by corresponding reductions in expenses, our business could be adversely affected.
In addition, under government procurement regulations and practices, a negative determination from a government audit could result in a contractor being fined, debarred, and/or suspended from being able to bid on, or be awarded, new government contracts for a period of time. 18 Table of Contents Within our U.S.
In addition, under government procurement regulations and practices, a negative determination from a government audit could result in a contractor being fined, debarred, and/or suspended from being able to bid on, or be awarded new government contracts for a period of time. Within our U.S.
Alliant 2 is an unrestricted, IDIQ, multi-vendor award with a contract ceiling of $50 billion. If we are unable to adapt to changing eligibility requirements for a specific GWAC, we would risk losing access to related contracts and awards.
Alliant 2 is an unrestricted, IDIQ, multi-vendor award with a contract ceiling of $50 billion. If we are unable to adapt to changing eligibility requirements for strategic GWAC competitions, we would risk losing access to related contracts and awards.
From time to time, when we are awarded a contract, we incur significant expenses before we receive any contract payments. These expenses include leasing and outfitting office space, purchasing office equipment, and hiring personnel. In other situations, contract terms provide for billing upon achievement of specified project milestones.
From time to time, when we are awarded a contract, we incur significant expenses before we receive any contract payments. These expenses include leasing and outfitting office space, purchasing office equipment, developing internal-use software, and hiring personnel. In other situations, contract terms provide for billing upon achievement of specified project milestones.
Our business lines operate within a variety of complex regulatory schemes, including but not limited to the FAR, Federal Cost Accounting Standards, the Truth in Negotiations Act, the Fair Debt Collection Practices Act (and similar national, state, and foreign laws), the Foreign Corrupt Practices Act, the United Kingdom Bribery Act, as well as the regulations governing Medicaid and Medicare and accounting standards.
Our business operates within a variety of complex regulatory environments, including but not limited to the FAR, Federal Cost Accounting Standards, the Truth in Negotiations Act, the Fair Debt Collection Practices Act (and similar national, state, and foreign laws), the Foreign Corrupt Practices Act, the United Kingdom Bribery Act, as well as the regulations governing Medicaid and Medicare and accounting standards.
Any adverse determination could adversely impact our ability to bid in response to RFPs in one or more jurisdictions.
Any such determination could adversely impact our ability to bid in response to RFPs in one or more jurisdictions.
If our systems or networks were compromised, we could be adversely affected by losing confidential or protected information of program participants and clients or by facing a demand for ransom to restore access to such information.
If our systems or networks are compromised, we could be adversely affected by losing confidential or protected information of program participants and clients or by facing a demand for ransom to prevent disclosure of or to restore access to such information.
Our delivery of services is labor-intensive. When we are awarded a government contract, we must quickly hire project leaders and operational staff. Some larger projects have required us to hire and train thousands of operational staff in a short time period. That effort can be especially challenging in geographic areas with low unemployment rates.
When we are awarded a government contract, we must quickly hire project leaders and operational staff. Some larger projects have required us to hire and train thousands of operational staff in a short time period. That effort can be especially challenging in geographic areas with low unemployment rates.
Integration of acquired businesses may result in material challenges, including, without limitation: • Our management might have its attention diverted from ongoing business concerns while trying to integrate these operations, and we could experience performance shortfalls within our existing or acquired businesses as a result of the devotion of management's attention to integration efforts. • The integration process could take longer than anticipated and could result in the loss of key employees, the disruption of each company's ongoing businesses, tax costs or inefficiencies, or inconsistencies in standards, controls, information technology systems, procedures and policies, any of which could materially adversely affect our ability to maintain relationships with customers, employees, or other third parties, or our ability to achieve the anticipated benefits of the transactions, and could harm our financial performance. • We could encounter unanticipated issues in integrating information technology, communications, and other systems that could harm our financial performance. • If we are unable to successfully or timely integrate our operations with those of our acquisitions, we may incur unanticipated liabilities and be unable to realize the revenue growth, synergies, and other anticipated benefits, and our business, results of operations, and financial condition could be materially adversely affected.
Integration of acquired businesses may result in material challenges, including, without limitation: • Our management might have its attention diverted from ongoing business concerns while trying to integrate these operations, and we could experience performance shortfalls within our existing or acquired businesses as a result of the devotion of management's attention to integration efforts. • The integration process could take longer than anticipated and could result in the loss of key employees, the disruption of each company's ongoing businesses, tax costs or inefficiencies, or inconsistencies in standards, controls, information technology systems, compliance requirements, procedures, and policies, any of which could materially adversely affect our ability to maintain relationships with customers, employees, or other third parties, or our ability to achieve the anticipated benefits of the transactions, and could harm our financial performance. • We could encounter unanticipated issues in integrating information technology, communications, and other systems that could harm our financial performance. • If we are unable to successfully or timely integrate our operations with those of our acquisitions, we may incur unanticipated liabilities and be unable to realize the revenue growth, synergies, and other anticipated benefits, and our business, results of operations, and financial condition could be materially adversely affected. 18 Table of Contents In connection with our acquisitions, we may be required to take write-downs, write-offs, restructuring, impairment, or other charges that could negatively affect our business, assets, liabilities, prospects, outlook, financial condition, and results of operations.
In addition, our unionized workers outside the United States could disrupt our operations, and our non-unionized workers could attempt to unionize which could disrupt our operations and impose higher costs on us. Our success depends in part on our ability to win profitable contracts to administer and manage health and human services programs traditionally administered by government employees.
In addition, our unionized workers outside the United States could disrupt our operations, and our non-unionized workers could attempt to unionize, which could disrupt our operations and impose higher costs on us. Our success depends in part on our ability to win profitable contracts to administer and manage programs often previously administered by government employees.
Consequently, as a result of the above matters, we may incur significant costs or liabilities, including penalties, which could adversely impact our operating results, cash flows, financial condition, and our ability to compete for future contracts.
Consequently, as a result of the above matters, we may incur significant costs or liabilities, including penalties, which could adversely impact our operating results, cash flows, financial condition, and our ability to compete for future contracts. We may also incur impairment costs on assets related to these contracts.
If we fail to accurately estimate the factors upon which we base our contract pricing, we may generate less profit than expected or incur losses on those contracts. We derived approximately 14% of our fiscal year 2022 revenue from fixed-price contracts and approximately 45% of our fiscal year 2022 revenue from performance-based contracts.
If we fail to accurately estimate the factors upon which we base our contract pricing, we may generate less profit than expected or incur losses on those contracts. During fiscal year 2023, we derived approximately 49% of our revenue from performance-based contracts and 15% from fixed-price contracts.
When interest rates increase, our debt service obligations on the variable rate indebtedness increase even though the amount borrowed remains the same. 22 Table of Contents Our indebtedness contains financial or other covenants that limit our operational flexibility in a number of other ways, including: • causing us to be less able to take advantage of business opportunities, such as other acquisition opportunities, and to react to changes in market or industry conditions; • increasing our vulnerability to adverse economic, industry, or competitive developments; • affecting our ability to pay or refinance debts as they become due during adverse economic, financial market, and industry conditions; • requiring us to use a larger portion of cash flow for debt service, reducing funds available for other purposes; • decreasing our profitability and/or cash flow; • causing us to be disadvantaged compared to competitors with less leverage; and • limiting our ability to borrow additional funds in the future to fund working capital, capital expenditures, and other general corporate purposes.
Our indebtedness contains financial or other covenants that limit our operational flexibility in a number of other ways, including: 21 Table of Contents • causing us to be less able to take advantage of business opportunities, such as other acquisition opportunities, and to react to changes in market or industry conditions; • increasing our vulnerability to adverse economic, industry, or competitive developments; • affecting our ability to pay or refinance debts as they become due during adverse economic, financial market, and industry conditions; • requiring us to use a larger portion of cash flow for debt service, reducing funds available for other purposes; • decreasing our profitability and/or cash flow; • causing us to be disadvantaged compared to competitors with less leverage; and • limiting our ability to borrow additional funds in the future to fund working capital, capital expenditures, and other general corporate purposes.
Our systems and networks may be subject to cybersecurity breaches. We are a trusted provider to government and other clients of critical health and human services that rely heavily upon technology systems, software, and networks to receive, input, maintain, and communicate participant and client data.
We are a trusted provider to government and other clients of critical health and human services that rely heavily upon technology systems, software, and networks to receive, input, maintain, and communicate participant and client data.
The loss of an executive officer or senior manager, including executives or managers who have joined us through acquisitions, could impair our ability to secure and manage engagements, which could harm our business, prospects, financial condition, results of operations, and cash flows. We may be unable to attract and retain sufficient qualified personnel to sustain our business.
The loss of an executive officer or senior manager, including those who joined us through acquisitions, could impair our ability to secure and manage engagements, which could harm our business, prospects, financial condition, results of operations, and cash flows. We may be unable to attract and retain sufficient qualified personnel to sustain our business. Our delivery of services is labor-intensive.
In fiscal year 2022, approximately 47% of our total revenue was derived from the U.S. federal government and approximately 35% of our total revenue was derived from contracts with state and local government agencies.
In fiscal year 2023, approximately 48% of our total revenue was derived from the U.S. federal government, and approximately 37% of our total revenue was derived from contracts with state and local government agencies.
Federal business, our ability to participate in many competitive bids in response to government RFPs may be managed through Government-Wide Acquisition Contracts ("GWACs") or the process by which agencies of the federal government purchase goods and services. Eligibility to remain on a GWAC changes over time.
Federal business, our ability to participate in many competitive bids in response to government RFPs is dependent on our Government-Wide Acquisition Contracts ("GWACs"), the most commonly used process by which agencies of the federal government purchase goods and services. Eligibility to remain on a GWAC changes over time.
Although it is difficult to track all the reasons for changes in our contracts, we believe that this contract erosion has typically affected approximately 7% to 10% of our business annually, with the erosion largely being replaced by new or expanded work elsewhere.
Although it is difficult to track all the reasons for changes in our contracts, we believe that this contract erosion has typically affected approximately 7% to 10% of our business annually, with the erosion largely being replaced by new or expanded work elsewhere. 16 Table of Contents Our business could be adversely affected by future legislative or government budgetary and spending changes.
We are required to identify the fair value of assets acquired, such as customer relationships and technology, using estimates which are based upon factors such as expected future operations and the manner in which we will utilize these assets, which may be inaccurate or may change post-acquisition.
We are required to identify the fair value of assets acquired, such as customer relationships and technology, using estimates that are based upon factors such as expected future operations and the manner in which we will utilize these assets, which may be inaccurate or may change post-acquisition. In addition, we have recorded $1.78 billion of goodwill at September 30, 2023.
While we believe that we perform appropriate due diligence on our subcontractors and teaming partners, we cannot guarantee that those parties will comply with the terms set forth in their agreements or remain financially sound.
From time to time, we engage subcontractors, teaming partners, or other third parties to provide our customers with a single-source solution. While we believe that we perform appropriate due diligence on our subcontractors and teaming partners, we cannot guarantee that those parties will comply with the terms set forth in their agreements or remain financially sound.
In connection with the acquisitions, we may be required to take write-downs or write-offs, restructuring and impairment, or other charges that could negatively affect our business, assets, liabilities, prospects, outlook, financial condition, and results of operations.
If the carrying value of our assets, including goodwill, exceeds their fair value, we may be required to take write-offs, write-downs, restructuring, impairment, or other charges that could negatively affect business, assets, liabilities, prospects, outlook, financial condition, and results of operations.
To the extent that a project does not perform as anticipated, these deferred costs may not be considered recoverable resulting in an impairment charge. 15 Table of Contents Our business could be materially and adversely impacted by the COVID-19 pandemic or other similar outbreaks.
To the extent that a project does not perform as anticipated, these deferred costs may not be considered recoverable, resulting in an impairment charge. 14 Table of Contents Our business could be materially and adversely impacted by pandemics, similar to the recent COVID-19 outbreak. We face various risks related to health epidemics, pandemics, and similar outbreaks.
We are also involved in various claims, arbitrations, and lawsuits arising in the normal conduct of our business, including but not limited to bid protests, employment matters, contractual disputes, and charges before administrative agencies.
We are also involved in various claims, arbitrations, and lawsuits arising in the normal conduct of our business, including but not limited to bid protests, employment matters, contractual disputes, and charges before administrative agencies. We may be subject to fines, penalties, and other sanctions if we fail to comply with laws governing our business.
We may not be awarded contracts through this process at the same level in the future as in the past, and contracts we are awarded may not be profitable. Substantially all of our customers are government agencies.
Risks Pertaining to Our Client Relationships We obtain most of our business through competitive bidding in response to government RFPs. We may not be awarded contracts through this process at the same level in the future as in the past, and contracts we are awarded may not be profitable. Substantially all of our customers are government agencies.
We may be precluded from bidding and performing certain work due to other work we currently perform. Various laws and regulations prohibit companies from performing work for government agencies that might be viewed as an actual or apparent conflict of interest. These laws limit our ability to pursue and perform certain types of work.
Various laws and regulations prohibit companies from performing work for government agencies that might be viewed as an actual or apparent conflict of interest. These laws limit our ability to pursue and perform certain types of work. For example, some of our businesses assist government agencies in developing RFPs for various government programs.
Our portfolio includes fixed-price and cost-plus contracts for which employment requirements are contract specific. In cost-plus contracts, we work with our customer to come to agreement with amendments for wage increases to meet the current demand and hiring needs.
Our portfolio includes fixed-price, performance-based, and cost-plus contracts for which employment requirements are contract-specific, and have varying impacts to financial results. In cost-plus contracts, we work with our customer to come to agreement for wage increases to meet the current demand and hiring needs, which generally does not impact profitability of these contracts.
Changes in the volume of activity and the number of contracts commenced, completed, or terminated during any quarter may cause significant variations in our cash flows and results of operations because a large amount of our expenses are fixed. Our indebtedness could adversely affect our business and our ability to meet our obligations.
Changes in the volume of activity and the number of contracts commenced, completed, or terminated during any quarter may cause significant variations in our cash flows and results of operations because a large amount of our expenses are fixed. Our profitability may be constrained by the effects of inflation.
Many government employees, however, belong to labor unions with considerable financial resources and lobbying networks. Unions have in the past applied, and are likely to continue to apply, political pressure on legislators and other officials seeking to outsource government programs.
Many government employees, however, belong to labor unions with considerable financial resources and lobbying networks. Further, unions that have historically not represented government employees may seek to unionize our workforce. Unions have in the past applied, and are likely to continue to apply, political pressure on legislators and other officials responsible for outsourced government programs.
If our reputation is negatively affected, our clients may decrease or cease business with us. In addition, we are subject to various reviews, audits, and investigations to verify our compliance with the terms of our contracts, as well as compliance with applicable laws and regulations.
In addition, we are subject to various reviews, audits, and investigations to verify our compliance with the terms of our contracts, as well as compliance with applicable laws and regulations.
If our estimates prove to be inaccurate, we may not achieve the level of profit we expected or we may incur a net loss on a contract. Our growth initiatives could adversely affect our profitability. We may encounter start-up challenges, new compliance requirements, unforeseen costs, and other risks as we enter these markets.
If our estimates prove to be inaccurate, we may not achieve the level of profit we expected, or we may incur a net loss on a contract. Our growth initiatives could adversely affect our profitability.
Changes in state or federal government initiatives or in the level of government spending due to budgetary or deficit considerations may have a significant impact on our future financial performance.
In addition, many of our contracts include clauses that allow clients to unilaterally modify or terminate contracts with little or no recompense. Changes in state or federal government initiatives or in the level of government spending due to budgetary or deficit considerations may have a significant impact on our future financial performance.
We may be required to take write-offs or write-downs, restructuring and impairment, or other charges that could negatively affect business, assets, liabilities, prospects, outlook, financial condition, and results of operations. 19 Table of Contents Risks Pertaining to Legal Compliance and Data Security We are subject to review and audit by governments at their sole discretion and, if any improprieties are found, we may be required to refund revenue we have received or forego anticipated revenue, which could have a material adverse impact on our revenue and our ability to bid in response to RFPs.
Risks Pertaining to Legal Compliance We are subject to review and audit by governments at their sole discretion and, if any improprieties are found, we may be required to refund revenue we have received or forego anticipated revenue, which could have a material adverse impact on our revenue and our ability to bid in response to RFPs.
That could make us less competitive in the marketplace and adversely affect our existing business, future opportunities, and financial condition. 20 Table of Contents Many of our projects handle protected health information or other forms of confidential personal information, the loss or disclosure of which could adversely affect our business, results of operations, and reputation.
Many of our projects handle protected health information or other forms of confidential personal information, the loss or disclosure of which has adversely affected, and in the future, could further adversely affect, our business, results of operations, and reputation.
These contracts include workforce services contracts in which we receive a payment based on a participant maintaining employment for a specified time period.
For performance-based contracts, we receive our fee on a per-transaction basis or upon meeting specified milestones. These contracts include workforce services contracts in which we receive a payment based on a participant maintaining employment for a specified time period. For fixed-price contracts, we receive our fee based on services provided.
For fixed-price contracts, we receive our fee based on services provided. Those services might include operating a Medicaid enrollment center pursuant to specified standards, designing and implementing information systems or applications, or delivering a planning document under a consulting arrangement. For performance-based contracts, we receive our fee on a per-transaction basis or upon meeting specified milestones.
Those services might include operating a Medicaid enrollment center pursuant to specified standards, designing and implementing information systems or applications, or delivering a planning document under a consulting arrangement.
Changes to those programs, such as program eligibility, benefits, or the level of federal funding, could reduce the level of demand for our services, which could materially adversely impact our future financial performance.
Many state programs in the United States, such as Medicaid, are federally mandated and fully or partially funded by the U.S. Federal Government. Changes to those programs, such as program eligibility, benefits, or the level of federal funding, including a government shutdown, could reduce the level of demand for our services, which could materially adversely impact our future financial performance.
In addition, litigation and other legal claims are subject to inherent uncertainties, and management's view of these matters may change in the future. Those uncertainties include, but are not limited to, costs of litigation, unpredictable court or jury decisions, and the differing laws and attitudes regarding damage awards among the states and countries in which we operate.
Those uncertainties include, but are not limited to, costs of litigation, unpredictable court or jury decisions, and the differing laws and attitudes regarding damage awards among the states and countries in which we operate. 19 Table of Contents We may be precluded from bidding and performing certain work due to other work we currently perform.
Similarly, if our internal networks were compromised, we could suffer the loss of proprietary, trade secret, or confidential technical and financial data.
Additionally, if our internal networks were compromised, we could suffer the loss of proprietary, trade secret, or confidential technical and financial data. That could make us less competitive in the marketplace and adversely affect our existing business, future opportunities, and financial condition.
Similarly, regulations governing the independence of Medicaid enrollment brokers and Medicare appeal providers prevent us from providing services to other organizations such as health plans and providers. We may face liabilities arising from divested or discontinued businesses. We have divested a number of businesses. The transaction documents for those divestitures typically contain a variety of representations, warranties, and indemnification obligations.
In those situations, the divisions involved in operating such programs would likely be precluded from bidding on those RFPs. Similarly, regulations governing the independence of Medicaid enrollment brokers and Medicare appeal providers prevent us from providing services to other organizations such as health plans and providers. We may face liabilities arising from divested or discontinued businesses.
Although we conducted due diligence on our acquisitions, we cannot assure that this diligence will reveal all material issues that may be present, that it would be possible to uncover all material issues through customary due diligence, or that factors outside of our control will not later arise.
Although we conduct due diligence on our acquisitions, this diligence may not reveal all material issues that may be present, nor does it preclude factors outside of our control from arising later.
We face various risks related to health epidemics, pandemics, and similar outbreaks, including the global outbreak of COVID-19. The COVID-19 pandemic negatively impacted worldwide economic activity and resulted in travel and work restrictions, commercial disruptions, and affected companies' operations around the world.
The COVID-19 pandemic negatively impacted worldwide economic activity and resulted in travel and work restrictions, commercial disruptions, and affected companies' operations around the world. We were affected by the COVID-19 pandemic, including operational disruptions and changes in working practices.
We have been and continue to be affected by the COVID-19 pandemic, including through operational disruptions and changes in working practices. If significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, facility closures, or other restrictions in connection with the COVID-19 pandemic, our operations will likely be adversely impacted.
If significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, facility closures, or other restrictions in connection with an outbreak, our operations will likely be adversely impacted. If our operations are materially restricted, we may be unable to perform fully on our contracts, and our costs may increase significantly.
We face competition from a variety of organizations, many of which have substantially greater financial resources than we do; we may be unable to compete successfully with these organizations. We face competition from a number of different organizations depending upon the market and geographic location in which we are competing.
These cost increases may not be fully recoverable or adequately covered by insurance. We face competition from a variety of organizations, many of which have substantially greater financial resources than we do; we may be unable to compete successfully with these organizations.
Similarly, increased or changed spending on defense, security, or anti-terrorism threats may impact the level of demand or funding for the health and human services programs that we operate. Many state programs in the United States, such as Medicaid, are federally mandated and fully or partially funded by the U.S. Federal Government.
For example, regulatory steps taken in response to the COVID-19 pandemic in the United States affected the level of work on many of our contracts. Similarly, increased or changed spending on defense, security, or anti-terrorism threats may impact the level of demand or funding for the health and human services programs that we operate.
Our contracts also typically contain provisions permitting a government customer to terminate the contract on short notice, with or without cause.
Government agencies do not have to exercise these option periods, and they may elect not to exercise them for budgetary, performance, or any other reason. Our contracts also typically contain provisions permitting a government customer to terminate the contract on short notice, with or without cause.
Any significant disruption or deterioration in our relationship with federal, state, and local governments and a corresponding reduction in these contracts would significantly reduce our revenue and could substantially harm our business.
Any significant disruption or deterioration in our relationship with federal, state, and local governments and a corresponding reduction in these contracts would significantly reduce our revenue and could substantially harm our business. 17 Table of Contents Our contracts typically run for a fixed number of years and may be extended for an additional specified number of years if the contracting entity or its agent elects to do so.
Our clients may elect to open bidding processes up earlier than anticipated, resulting in increased competition prior to the anticipated end of contracts. Our reputation and relationships with our clients are key factors in maintaining our business. Negative press reports or publicity, regardless of accuracy, could harm our reputation.
Our reputation and relationships with our clients are key factors in maintaining our business. Negative press reports or publicity, regardless of accuracy, could harm our reputation. If our reputation is negatively affected, our clients may decrease or cease business with us.
We may not be invited to bid, and therefore be unable to be awarded contracts through this process at the same level in the future as in the past if we do not maintain full eligibility requirements over time. A GWAC is a pre-competed, multiple-award, indefinite-delivery, indefinite-quantity ("IDIQ") contract that agencies can use to buy total IT solutions.
If we are unsuccessful and not awarded GWAC contracts, this would have a negative impact on future opportunities. A GWAC is a pre-competed, multiple-award, indefinite-delivery, indefinite-quantity ("IDIQ") contract that agencies can use to buy total IT solutions.
Many of our contracts are not fully funded at inception and rely upon future appropriations of funds. Accordingly, a failure to receive additional anticipated funding may result in an early termination of a contract. In addition, many of our contracts include clauses that allow clients to unilaterally modify or terminate contracts with little or no recompense.
The market for our services depends largely on domestic and international legislative programs and the budgetary capability to support programs, including the continuance of existing programs. Many of our contracts are not fully funded at inception and rely upon future appropriations of funds. Accordingly, a failure to receive additional anticipated funding may result in early termination of a contract.
At September 30, 2022, we owed $1.4 billion under our credit facilities. At September 30, 2022, our effective interest rate was 4.69%, compared to 2.05% at September 30, 2021. Our credit facilities are subject to variable rates that expose us to interest rate risk.
At September 30, 2023, our effective interest rate was 5.97%, compared to 4.69% at September 30, 2022. Our credit facilities are subject to variable rates that expose us to interest rate risk. When interest rates increase, our debt service obligations on the variable rate indebtedness increase even though the amount borrowed remains the same.
Our contracts typically run for a fixed number of years and may be extended for an additional specified number of years if the contracting entity or its agent elects to do so. When these contracts expire, they may be opened for bidding by competing bidders, and there is no guarantee that the contracts will be renewed or extended.
When these contracts expire, they may be opened for bidding by competing bidders, and there is no guarantee that the contracts will be renewed or extended. Our clients may elect to open bidding processes up earlier than anticipated, resulting in increased competition prior to the anticipated end of contracts.
Changes in SOFR can be volatile and difficult to predict, and there can be no assurance that SOFR will perform similarly to the way LIBOR would have performed at any time. As a result, the amount of interest we may pay on our credit facilities is difficult to predict. We are subject to the risks of doing business internationally.
SOFR is a relatively new reference rate, has a very limited history, and is based on short-term repurchase agreements backed by Treasury securities. Changes in SOFR can be volatile and difficult to predict, and there can be no assurance that SOFR will perform similarly to the way LIBOR would have performed at any time.
We may be exposed to liability, and we and our clients may be adversely affected if a subcontractor or teaming partner fails to meet its contractual obligations. Risks Pertaining to Our Client Relationships We obtain most of our business through competitive bidding in response to government RFPs.
We may be exposed to liability, and we and our clients may be adversely affected if a subcontractor or teaming partner fails to meet its contractual obligations. Risks Pertaining to Data and Data Security Our development and use of emerging artificial intelligence (“AI”) and machine learning (“ML”) technologies creates unique risks requiring use case-specific governance.
There can be no assurance that we will be able to compete successfully against our existing or any new competitors. 16 Table of Contents From time to time, we engage subcontractors, teaming partners, or other third parties to provide our customers with a single-source solution.
There can be no assurance that we will be able to compete successfully against our existing or any new competitors. We use third parties to assist us in providing services to our customers, and these third parties may not perform as expected.
Substantial resources could enable certain competitors to initiate severe price cuts or take other measures in an effort to gain market share. In addition, we may be unable to compete for the limited number of large contracts because we may not be able to meet an RFP's requirement to obtain and post a large performance bond.
In addition, we may be unable to compete for the limited number of large contracts because we may not be able to meet a Request For Proposal's ("RFP") requirement to obtain and post a large performance bond. Also, in some geographic areas, we face competition from smaller firms with established reputations and political relationships.
For the year ended September 30, 2022, 16% of our revenue was driven from jurisdictions outside the U.S.
As a result, the amount of interest we may pay on our credit facilities is difficult to predict. We are subject to the risks of doing business internationally. For the year ended September 30, 2023, 14% of our revenue was driven from jurisdictions outside the U.S.
Non-unionized workers could initiate organizing efforts to unionize at one or more of our locations. Such organizing efforts could be disruptive to our business operations and result in adverse publicity. A successful union organizing effort could substantially increase our personnel costs.
A successful union organizing effort at one or more of our locations could substantially increase our 20 Table of Contents costs and result in our inability to successfully recompete for existing business. Outside the United States, we currently operate outsourced programs with unionized employees in the U.K, and in the past we have operated programs with unionized employees in Canada.
A summary of our most significant competitors is included in Item 1 of this Annual Report on Form 10-K. Many of these companies are international in scope, larger than us, and have greater financial resources, name recognition, and larger technical staffs.
We face competition from a number of different organizations depending upon the market and geographic location in which we are competing. Some of our most significant competitors are included in Item 1 of this Annual Report on Form 10-K.
Removed
If our operations are materially restricted, we may be unable to perform fully on our contracts and our costs may increase significantly as a result of the COVID-19 outbreak. These cost increases may not be fully recoverable or adequately covered by insurance.
Added
We may encounter start-up challenges, new compliance requirements, unforeseen costs, and other risks as we enter new markets, including managing our ramp-up, recruiting and retaining appropriately experienced and qualified employees, managing customer expectations, and appropriately budgeting and pricing new work.
Removed
During 2022, the spread of COVID-19 led to disruptions and volatility in the global capital markets, which could increase the cost of capital and impede our ability to access capital if we need to do so in the future. We continue to work with our customers, employees, and suppliers to responsibly address this global pandemic.
Added
Many of these companies are international in scope, larger than us, and have greater financial resources, name recognition, and larger technical staff. Substantial resources could enable certain competitors to initiate severe price cuts or take other measures in an effort to gain market share.
Removed
We will continue to monitor the situation, assess further possible implications to our business and our stakeholders, and will take appropriate actions in an effort to mitigate adverse consequences. We cannot assure you that we will be successful in any such mitigation efforts. Our customers, and therefore our business and revenues, are sensitive to negative changes in general economic conditions.
Added
If we fail to establish and maintain sufficient oversight, we face increased risk of negative outcomes which could expose us to legal liability, financial loss, and reputational damage. Applicable laws and regulations, both existing and forthcoming, often focus on AI/ML use when that technology is used to influence outcomes or make inferences about individuals, groups, or communities.
Removed
A new surge in COVID-19 cases or the emergence of new variants could result in vaccine or testing requirements by governments in areas where we operate.
Added
These new and emerging technologies require use-case-specific governance, with oversight that adequately addresses AI/ML-specific areas of concern, such as transparency, explainability, fairness, harmful bias mitigation, and unique third-party privacy and security risks.
Removed
Our implementation of these requirements may result in workforce attrition and difficulty meeting our existing or future hiring needs, which could have a material adverse effect on our business, financial condition, and results of operations. Demand for talent is highly competitive with additional pressures influenced by the pandemic.
Added
If we fail to establish and maintain sufficient oversight, which evolves at the rapid pace with which AI/ML technology is changing, we could be subject to sanctions under the relevant laws, breach of contract claims, contract termination, class action, or individual lawsuits from affected parties, negative press articles, reputational damage, and a loss of confidence from our government clients, all of which could adversely affect our existing business, future opportunities, and financial condition. 15 Table of Contents Our systems and networks are and have been subject to cybersecurity breaches.
Removed
It is a challenge across the industry in how we estimate wage inflation rates and the impact of an ongoing pandemic as we submit proposals, particularly for fixed-price contracts. Our investments in technology and digital innovation have further enabled us to drive efficiency in our program delivery.
Added
We have experienced cybersecurity incidents in the past that were immaterial, and in the third quarter of fiscal year 2023, we experienced a material cybersecurity incident as the personal information of a significant number of individuals was accessed by an unauthorized third party by exploiting a zero-day vulnerability in a file transfer application used by many organizations, including us.
Removed
The competitive labor market requires that we continue to monitor and evaluate our related risks and opportunities. We continue to focus on human resources investments to position ourselves as an employer of choice and differentiate the company by leveraging flexibility, compensation and benefits, training and development, and other efforts.
Added
We have recorded expenses in connection with the investigation and remediation activities related to this incident, but we are unable to predict other potential liabilities or consequences that may arise from this incident. Despite our preventative and remediation efforts, we may continue to experience cybersecurity incidents in the future.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeIn nine countries outside the U.S., the Company leased approximately 366 offices totaling approximately 0.9 million square feet. The lease terms vary from month-to-month to ten-year leases and are generally entered into at market rates.
Biggest changeItem 2. Properties As of September 30, 2023, we leased approximately 176 offices in the U.S., totaling approximately 3.8 million square feet. In nine countries outside the U.S., we leased approximately 333 offices, totaling approximately 0.8 million square feet. The lease terms vary from month-to-month to ten-year leases and are generally entered into at market rates.
Removed
Item 2. Properties During fiscal year 2022, we sold the building in which our corporate headquarters was located. We lease offices for operations, management, and administrative functions in connection with the performance of our services. As of September 30, 2022, the Company leased approximately 171 offices in the U.S. totaling approximately 4.0 million square feet.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings Refer to our disclosures included in " Note 15 . Commitments and Contingencies " included in Item 8 of this Annual Report on Form 10-K. Item 4. Mine Safety Disclosures Not applicable. 24 Table of Contents PART II
Biggest changeItem 3. Legal Proceedings Refer to our disclosures included in " Note 15. Commitments and Contingencies " included in Item 8 of this Annual Report on Form 10-K. Item 4. Mine Safety Disclosures Not applicable. 23 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest change(2) The total number of shares purchased includes 146,447 restricted stock units which vested in September 2022, but which were utilized by the recipients to settle personal income tax obligations. 25 Table of Contents Stock Performance Graph The following graph compares the cumulative total shareholder return on our common stock for the five-year period from September 30, 2017, to September 30, 2022, with the cumulative total returns for the S&P MidCap 400 Index.
Biggest changeStock Performance Graph The following graph compares the cumulative total shareholder return on our common stock for the five-year period from September 30, 2018, to September 30, 2023, with the cumulative total returns for the S&P MidCap 400 Index and the S&P MidCap 400 Value Index. Both S&P indices are utilized in outstanding market-based equity awards issued by Maximus.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is traded on the New York Stock Exchange, or NYSE, under the symbol "MMS." As of October 27, 2022, there were 37 holders of record of our outstanding common stock.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is traded on the New York Stock Exchange, or NYSE, under the symbol "MMS." Holders of Record As of October 27, 2023, there were 32 holders of record of our outstanding common stock.
In addition, we compared the results of a peer group to our performance. This new peer group is based upon the companies with similar revenue by end market. This peer group is comprised of Booz Allen Hamilton Holding Corp., CACI International Inc., Conduent, Inc., ICF International, Inc., Leidos, Inc., and Science Applications International Corporation (SAIC).
In addition, we compared the cumulative total shareholder return of a peer group to our common stock's performance. This peer group is based upon the companies with similar revenue by end market. This peer group is comprised of Booz Allen Hamilton Holding Corp., CACI International Inc., Conduent, Inc., ICF International, Inc., Leidos, Inc., and Science Applications International Corporation (SAIC).
Our quarterly dividends during fiscal years 2022, 2021, and 2020 were $0.28 per share, respectively. We intend to continue paying regular cash dividends, although there is no assurance as to future dividends.
Dividend Policy During the first fiscal quarter of 2024, we declared a quarterly dividend of $0.30 per share of Maximus common stock. Our quarterly dividends during fiscal years 2023, 2022, and 2021 were $0.28 per share, respectively. We intend to continue paying regular cash dividends, although there is no assurance as to future dividends.
Notes: • The lines represent index levels derived from compounded daily returns that include all dividends. • The indexes are reweighted daily, using the market capitalization on the previous trading day. • If the monthly interval, based on the fiscal year-end, is not a trading day, the preceding trading day is used. • The index level for all series was set to $100.00 on September 30, 2017.
This graph assumes the investment of $100 on September 30, 2018, in our common stock, the S&P MidCap 400 Index, the S&P MidCap 400 Value Index, and our peer group, weighted by market capitalization, and assumes dividends are reinvested. 24 Table of Contents Notes: • The lines represent index levels derived from compounded daily returns that include all dividends. • The indexes are reweighted daily, using the market capitalization on the previous trading day. • If the monthly interval, based on the fiscal year-end, is not a trading day, the preceding trading day is used. • The index level for all series was set to $100.00 on September 30, 2018.
The number of holders of record is not representative of the number of beneficial owners due to the fact that many shares are held by depositories, brokers, or nominees. We estimate there are approximately 114,807 beneficial owners of our common stock. During the first fiscal quarter of 2023, we declared a quarterly dividend of $0.28 per share of Maximus stock.
The number of holders of record is not representative of the number of beneficial owners due to the fact that many shares are held by depositories, brokers, or nominees. We estimate there are approximately 164,000 beneficial owners of our common stock.
Removed
Common Stock Repurchase Activity During the Three Months Ended September 30, 2022 Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of the Publicly Announced Plans (1) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans (in thousands) July 1, 2022 - July 31, 2022 353,848 $ 62.86 353,848 $ 50,588 August 1, 2022 - August 31, 2022 — — — $ 50,588 September 1, 2022 - September 30, 2022 (2) 146,447 57.87 — $ 50,588 500,295 $ 61.40 353,848 (1) Under a resolution adopted in March 2020, the Board of Directors authorized the purchase, at management's discretion, of up to an aggregate of $200 million of our common stock.
Added
Issuer Purchases of Equity Securities In March 2020, the Board of Directors authorized the purchase, at management's discretion, of up to $200 million of our common stock. We made no purchases of common stock in fiscal year 2023, and $50.6 million remained available for stock purchases as of September 30, 2023.
Removed
The old peer group was based upon companies listed within our proxy statement as entities whom we used as data points in establishing executive compensation.
Removed
The old peer group is comprised of Booz Allen Hamilton Holding Corp., CACI International Inc., Conduent, Inc., Gartner Inc., ICF International, Inc., Leidos, Inc., ManTech International Corp., Science Applications International Corporation (SAIC), Unisys Corp., Tetra Tech Inc., and KBR, Inc.
Removed
This graph assumes the investment of $100 on September 30, 2017, in our common stock, the S&P MidCap 400 Index, and our peer groups, weighted by market capitalization and assumes dividends are reinvested.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeItem 6. Reserved 26 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 27 Business Overview 27 Financial Overview 27 Results of Operations 28 Backlog 33 Liquidity and Capital Resources 33 Critical Accounting Policies and Estimates 36 Non-GAAP and Other Measures 37 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 39 Item 8.
Biggest changeItem 6. [ R eserve d ] 25 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 26 Business Overview 26 Financial Overview 26 Results of Operations 27 Backlog 32 Liquidity and Capital Resources 33 Critical Accounting Policies and Estimates 36 Non-GAAP and Other Measures 37 Item 7A.
Financial Statements and Supplementary Data 40 Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) 40 Consolidated Statements of Operations 42 Consolidated Statements of Comprehensive Income 43 Consolidated Balance Sheets 44 Consolidated Statements of Cash Flows 45 Consolidated Statements of Changes in Shareholders' Equity 46 Notes to the Consolidated Financial Statements 47 1. Organization 47 2.
Financial Statements and Supplementary Data 41 Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) 41 Consolidated Statements of Operations 43 Consolidated Statements of Comprehensive Income 44 Consolidated Balance Sheets 45 Consolidated Statements of Cash Flows 46 Consolidated Statements of Changes in Shareholders' Equity 47 Notes to the Consolidated Financial Statements 48 1. Organization 48 2.
Significant Accounting Policies 47 3. Business Segments 53 4. Revenue Recognition 56 5. Earnings Per Share 58 6. Business Combinations 59 7. Goodwill and Intangible Assets 63 8. Debt and Derivatives 64 9. Fair Value Measurements 66 10. Leases 67 11. Income Taxes 67 12. Equity 69 13.
Significant Accounting Policies 48 3. Business Segments 54 4. Revenue Recognition 56 5. Earnings Per Share 58 6. Business Combination s and Divestiture s 59 7. Goodwill and Intangible Assets 62 8. Debt and Derivatives 63 9. Fair Value Measurements 65 10. Leases 66 11. Income Taxes 66 12. Equity 69 13.
Cash and Cash Equivalents and Restricted Cash 71 2 Table of Contents Table of Contents to 2022 Form 10-K (continued) 14. Other Balance Sheet Components 71 15. Commitments and Contingencies 74 16. Employee Benefit Plans and Deferred Compensation 75 17. Subsequent Event 75
Cash and Cash Equivalents and Restricted Cash 70 2 Table of Contents Table of Contents to 2023 Form 10-K (continued) 14. Other Balance Sheet Components 70 15. Commitments and Contingencies 72 16. Employee Benefit Plans and Deferred Compensation 74 17. Subsequent Even t s 74
Added
Quantitative and Qualitative Disclosures About Market Risk 40 Item 8.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeTable MD&A 13: Reconciliation of Net Income to Non-GAAP Adjusted EBITA, Non-GAAP Adjusted EBITDA, and Non-GAAP Pro Forma Adjusted EBITDA For the Year Ended September 30, 2022 2021 (in thousands) Net income $ 203,828 $ 291,200 Adjustments: Interest expense 45,965 14,744 Other expense 2,835 10,105 Provision for income taxes 73,270 92,481 Amortization of intangibles 90,465 44,357 Stock compensation expense 30,476 28,554 Acquisition-related expenses 332 10,820 Gain on sale of land and building (11,046) — Adjusted EBITA - Non-GAAP measure 436,125 492,261 Depreciation and amortization of property, equipment, and capitalized software 42,330 46,361 Adjusted EBITDA - Non-GAAP measure 478,455 $ 538,622 Pro forma and other adjustments permitted by our credit agreement - Non-GAAP measure 30,032 92,398 Pro forma adjusted EBITDA - Non-GAAP measure $ 508,487 $ 631,020 38 Table of Contents
Biggest changeTable MD&A 11: Reconciliation of Net Income to Consolidated EBITDA as defined by our Credit Agreement For the Year Ended September 30, 2023 2022 (in thousands) Net income $ 161,792 $ 203,828 Adjustments: Interest expense 84,138 45,965 Other expense, net 363 2,835 Provision for income taxes 48,501 73,270 Amortization of intangibles 94,591 90,465 Stock compensation expense 29,522 30,476 Acquisition-related expenses 575 332 Gain on sale of land and building — (11,046) Loss on sale of businesses 883 — Depreciation and amortization of property, equipment, and capitalized software 54,725 42,330 Pro forma and other adjustments permitted by our Credit Agreement 69,892 30,032 Consolidated EBITDA (as defined by our Credit Agreement) $ 544,982 $ 508,487 Table MD&A 12: Consolidated Net Total Leverage Ratio For the Year Ended September 30, 2023 2022 (in thousands, except ratio data) Funded Debt (as defined by our Credit Agreement) $ 1,257,529 $ 1,366,314 Cash and cash equivalents up to $75 million 65,405 40,658 Consolidated Net Total Leverage (as defined by our Credit Agreement) $ 1,192,124 $ 1,325,656 Consolidated Net Total Leverage Ratio (as defined by our Credit Agreement) 2.19 2.61 35 Table of Contents Table MD&A 13: Consolidated Net Interest Coverage Ratio For the Year Ended September 30, 2023 2022 (in thousands, except ratio data) Consolidated EBITDA (as defined by our Credit Agreement) $ 544,982 $ 508,487 Interest expense 84,138 45,965 Components of other income/expense, net allowed in ratio calculation 2,684 (118) Consolidated Net Interest Expense (as defined by our Credit Agreement) $ 86,822 $ 45,847 Consolidated Net Interest Coverage Ratio (as defined by our Credit Agreement) 6.28 11.09 Leases As of September 30, 2023, we reported current and long-term operating lease liabilities of $49.9 million and $129.4 million, respectively.
Where possible, we mitigate this risk by including clauses allowing for the termination of lease agreements if the contract the location covers is terminated by our customer. See Note 10 to the Consolidated Financial Statements for information regarding our leases, including obligations by fiscal year.
Where possible, we mitigate this risk by including clauses allowing for the termination of lease agreements if the contract the location covers is terminated by our customer. See "Note 10. Leases" to the Consolidated Financial Statements for information regarding our leases, including obligations by fiscal year.
The accounting for our acquisitions included determining the fair value of intangible assets representing customer relationships, the VES provider network and VES technology. In making our determination of the fair value of these assets, we utilized estimates, the most significant of which were forecasts related to future revenues and profit margins.
The accounting for our acquisitions included determining the fair value of intangible assets representing customer relationships, the VES provider network, and technology. In making our determination of the fair value of these assets, we utilized estimates, the most significant of which were forecasts related to future revenues and profit margins.
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.
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.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read together with the Company's audited consolidated financial statements and the related notes thereto for the fiscal years ended September 30, 2022, 2021, and 2020 included in Item 8.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read together with the Company's audited consolidated financial statements and the related notes thereto for the fiscal years ended September 30, 2023, 2022, and 2021, included in Item 8.
These balances represent our contractual obligation to make future payments on our leases, discounted to reflect our cost of borrowing. The majority of these leases are for real estate. In the event that we vacate a location, we may be obliged to continue making lease payments.
These balances represent our contractual obligation to make future payments on our leases, discounted to reflect our cost of borrowing. The majority of these leases are for real estate. In the event that we vacate a location, we may be obligated to continue making lease payments.
Where we have acquisitions that provide services to more than one segment, or where the acquisition provides benefits across all of our segments, we use judgment to allocate the goodwill balance based upon the relative value we anticipate that each segment will realize. 36 Table of Contents • Goodwill is not amortized but is subject to impairment testing on an annual basis, or more frequently if impairment indicators arise.
Where we have acquisitions that provide services to more than one segment or where the acquisition provides benefits across all of our segments, we use judgment to allocate the goodwill balance based upon the relative value we anticipate that each segment will realize. • Goodwill is not amortized but is subject to impairment testing on an annual basis, or more frequently if impairment indicators arise.
Our standard forecasting process includes analyzing new work pipelines and submitted responses to requests for proposals ("RFPs") when predicting future revenue, operating income, and cash flows. Liquidity and Capital Resources Our primary sources of liquidity are cash on hand, cash from operations, and availability under our revolving credit facilities.
Our standard forecasting process includes analyzing new work pipelines and submitted responses to requests for proposals ("RFPs") when predicting future revenue, operating income, and cash flows. 32 Table of Contents Liquidity and Capital Resources Our primary sources of liquidity are cash on hand, cash from operations, and availability under our revolving credit facilities.
We maintain a rabbi trust to fund this liability. 35 Table of Contents 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 and judgments that affect the amounts reported.
We maintain a rabbi trust to fund this liability. 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 and judgments that affect the amounts reported.
The identification of our reporting units requires judgment based upon the manner in which our business is operated and the services performed. We believe our reporting units are consistent with our segments.
The identification of our reporting units requires judgment based upon the manner in which our business is operated and the services performed. Our reporting units are consistent with our segments.
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.
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. 39 Table of Contents
These non-GAAP measures, as determined and presented by us, may not be comparable to related or similarly titled measures presented by other companies. In fiscal year 2022, 16% of our revenue was generated outside the U.S.
These non-GAAP measures, as determined and presented by us, may not be comparable to related or similarly titled measures presented by other companies. In fiscal year 2023, 14% of our revenue was generated outside the U.S.
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.
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, net cash provided by operating activities, operating income, net income, or earnings per share as measures of performance or liquidity.
We have provided a reconciliation of cash flows from operations to free cash flow in "Liquidity and Capital Resources." 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.
We have provided a reconciliation of net cash provided by operating activities to free cash flow in "Liquidity and Capital Resources." 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.
Deferred compensation plan As of September 30, 2022, we reported liabilities of $43.1 million related to our deferred compensation plan. These balances are due to our employees based upon elections they make at the time of deferring their funds. The timing of these payments may change based upon factors, including termination of our employment arrangement with a participant.
Deferred compensation plan As of September 30, 2023, we reported liabilities of $46.4 million related to our deferred compensation plan. These balances are due to our employees based upon elections they make at the time of deferring their funds. The timing of these payments may change based upon factors, including termination of our employment arrangement with a participant.
Services Segment provides a variety of business process services ("BPS"), such as program administration, appeals and assessments, and related consulting work for U.S. state and local government programs. These services support a variety of programs, including the Affordable Care Act ("ACA"), Medicaid, the Children's Health Insurance Program ("CHIP"), Temporary Assistance to Needy Families ("TANF"), and child support programs.
Services Segment provides a variety of 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 ACA, Medicaid, the Children's Health Insurance Program ("CHIP"), Temporary Assistance to Needy Families ("TANF"), and child support programs.
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.
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 net cash provided by operating activities and capital expenditures. We provide free cash flow to complement our consolidated statements of cash flows.
The longevity of these contracts assists management in predicting revenue, operating income, and cash flows for the purposes of business planning. We expect approximately 24% of the backlog balance to be realized as revenue in fiscal year 2022, which is 90% of the midpoint of fiscal year 2022 revenue guidance.
The longevity of these contracts assists management in predicting revenue, operating income, and cash flows for the purposes of business planning. We expect approximately 24% of the backlog balance to be realized as revenue in fiscal year 2024.
Increases in backlog result from the award of new contracts and the extension or renewal of existing contracts. Reductions in backlog come from fulfilling contracts or the early termination of contracts which our experience shows to be a rare occurrence. See "Risk Factors" in Item 1A of this Annual Report.
Reductions in backlog come from fulfilling contracts or the early termination of contracts, which our experience shows to be a rare occurrence. See "Risk Factors" in Item 1A of this Annual Report.
Benefited by the Maximus Attain platform, the segment executes on its digital strategy to deliver technology solutions that advance agency missions, including the challenge to modernize, provide better customer experience, and drive process efficiencies. The segment continues to expand its clinical solutions and manages the clinical evaluation process for U.S. veterans and service members on behalf of the U.S.
Under Technology Consulting Services ("TCS"), 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 through VES, which manages the clinical evaluation process for U.S. veterans and service members on behalf of the VA.
Significant Accounting Policies" of the Consolidated Financial Statements included in Item 8 in this Annual Report on Form 10-K. Revenue Recognition Although much of our revenue is recognized concurrently with billing or with the passage of time, some of our revenue requires us to make estimates.
Significant Accounting Policies" of the Consolidated Financial Statements included in Item 8 in this Annual Report on Form 10-K. Revenue Recognition Although much of our revenue is recognized concurrently with billing or with the passage of time, some of our revenue requires us to make estimates. These estimates are reviewed quarterly, with any changes being recorded as a cumulative catch-up.
These audits may take place several years after a contract has been completed. We maintain reserves where we are able to estimate any potential liability that is updated as audits are completed. 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.
We maintain reserves where we believe a loss is probable and are able to estimate any potential liability that is updated as audits are completed. 37 Table of Contents 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.
A discussion comparing our results between fiscal years 2021 and 2020 can be found in our Annual Report on Form 10-K for the year ended September 30, 2021, which we filed with the Securities and Exchange Commission on November 18, 2021.
Risk Factors and in "Special Note Regarding Forward-Looking Statements." A discussion comparing our results of operations, backlog, and liquidity and capital resources between fiscal years 2022 and 2021 can be found in our Annual Report on Form 10-K for the year ended September 30, 2022, which we filed with the Securities and Exchange Commission on November 22, 2022.
This resulted in a gain of $11.0 million and a cash inflow of $16.4 million. 27 Table of Contents Results of Operations The following table sets forth, for the fiscal years indicated, information derived from our statements of operations. In preparing our discussion and analysis of these results, we focused on the comparison between fiscal years 2022 and 2021.
Segment. 26 Table of Contents Results of Operations The following table sets forth, for the fiscal years indicated, information derived from our statements of operations. In preparing our discussion and analysis of these results, we focused on the comparison between fiscal years 2023 and 2022.
As of September 30, 2022, we had $40.7 million in cash and cash equivalents.
As of September 30, 2023, we had $65.4 million in cash and cash equivalents.
Table MD&A 1: Consolidated Results of Operations For the Year Ended September 30, 2022 2021 (dollars in thousands, except per share data) Revenue $ 4,631,018 $ 4,254,485 Cost of revenue 3,691,208 3,307,510 Gross profit 939,810 946,975 Gross profit percentage 20.3 % 22.3 % Selling, general, and administrative expenses 534,493 494,088 Selling, general, and administrative expenses as a percentage of revenue 11.5 % 11.6 % Amortization of intangible assets 90,465 44,357 Gain on sale of land and building 11,046 — Operating income 325,898 408,530 Operating margin 7.0 % 9.6 % Interest expense 45,965 14,744 Other expense, net 2,835 10,105 Income before income taxes 277,098 383,681 Provision for income taxes 73,270 92,481 Effective tax rate 26.4 % 24.1 % Net income $ 203,828 $ 291,200 Earnings per share: Basic $ 3.30 $ 4.69 Diluted $ 3.29 $ 4.67 Our business segments have different factors driving revenue fluctuations and profitability.
Table MD&A 1: Consolidated Results of Operations For the Year Ended September 30, 2023 2022 (dollars in thousands, except per share data) Revenue $ 4,904,728 $ 4,631,018 Cost of revenue 3,876,120 3,691,208 Gross profit 1,028,608 939,810 Gross profit percentage 21.0 % 20.3 % Selling, general, and administrative expenses 639,223 534,493 Selling, general, and administrative expenses as a percentage of revenue 13.0 % 11.5 % Amortization of intangible assets 94,591 90,465 Gain on sale of land and building — 11,046 Operating income 294,794 325,898 Operating margin 6.0 % 7.0 % Interest expense 84,138 45,965 Other expense, net 363 2,835 Income before income taxes 210,293 277,098 Provision for income taxes 48,501 73,270 Effective tax rate 23.1 % 26.4 % Net income $ 161,792 $ 203,828 Earnings per share: Basic $ 2.65 $ 3.30 Diluted $ 2.63 $ 3.29 Our business segments have different factors driving revenue fluctuations and profitability.
Segment - Financial Results For the Year Ended September 30, 2022 2021 (dollars in thousands) Revenue $ 763,662 $ 699,091 Cost of revenue 686,296 592,717 Gross profit 77,366 106,374 Selling, general, and administrative expenses 92,536 86,248 Operating (loss)/income (15,170) 20,126 Gross profit percentage 10.1 % 15.2 % Operating margin percentage (2.0) % 2.9 % Table MD&A 9: Outside the U.S.
Segment - Financial Results For the Year Ended September 30, 2023 2022 (dollars in thousands) Revenue $ 689,053 $ 763,662 Cost of revenue 595,872 686,296 Gross profit 93,181 77,366 Selling, general, and administrative expenses 102,311 92,536 Operating loss (9,130) (15,170) Gross profit percentage 13.5 % 10.1 % Operating margin percentage (1.3) % (2.0) % 30 Table of Contents Table MD&A 6: Outside the U.S.
The segment also contains certain state-based assessments and appeals work that is part of the segment's heritage within the Medicare Appeals portfolio which continues to be managed within this segment.
This segment also includes appeals and assessments services, system and application development, Information Technology ("IT") modernization, and maintenance services. Certain state-based assessments and appeals work that is part of the segment's heritage continues to be managed within this segment.
Services Segment - Financial Results For the Year Ended September 30, 2022 2021 (dollars in thousands) Revenue $ 1,607,612 $ 1,662,110 Cost of revenue 1,264,608 1,254,060 Gross profit 343,004 408,050 Selling, general, and administrative expenses 160,902 153,609 Operating income 182,102 254,441 Gross profit percentage 21.3 % 24.6 % Operating margin percentage 11.3 % 15.3 % Our revenue and cost of revenue for the year ended September 30, 2022, decreased 3.3% and 0.8%, respectively, compared to fiscal year 2021.
Services Segment - Financial Results For the Year Ended September 30, 2023 2022 (dollars in thousands) Revenue $ 1,812,069 $ 1,607,612 Cost of revenue 1,434,528 1,264,608 Gross profit 377,541 343,004 Selling, general, and administrative expenses 194,991 160,902 Operating income 182,550 182,102 Gross profit percentage 20.8 % 21.3 % Operating margin percentage 10.1 % 11.3 % Our revenue and cost of revenue for the year ended September 30, 2023, increased 12.7% and 13.4%, respectively, compared to fiscal year 2022.
The prior year's cash flows include payments for the acquisitions of VES, Attain and Connect Assist. Net Cash (Used In)/Provided By Financing Activities The principal drivers of financing cash flows are the Credit Agreement, our equity transactions and restricted cash flows where we hold funds on behalf of customers or vendors.
We received payments for the sales of our Swedish business and for our sale of a small commercial practice in the United Kingdom. Net Cash Used In Financing Activities The principal drivers of financing cash flows are the Credit Agreement, our equity transactions, and restricted cash flows where we hold funds on behalf of customers or vendors.
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.
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.
Impairment testing is performed at the reporting unit level. This process requires judgment in assessing the fair value of these reporting units. As of July 1, 2022, the Company performed its annual impairment test and determined that there was no impairment of goodwill. In performing this assessment, we utilized a quantitative approach.
Impairment testing is performed at the reporting unit level. This process requires judgment in assessing the fair value of these reporting units. We performed the annual impairment test using the qualitative assessment as of July 1, 2023, and concluded that the fair value of each of the reporting units were greater than the carrying amounts.
See Note 8 to the Consolidated Financial Statements for a more detailed discussion of our debt financing arrangements. 33 Table of Contents Table MD&A 11: Net Change in Cash and Cash Equivalents and Restricted Cash For the Year Ended September 30, 2022 2021 (in thousands) Operating activities: Net cash provided by operating activities $ 289,839 $ 517,322 Net cash used in investing activities (54,009) (1,835,480) Net cash (used in)/provided by financing activities (248,271) 1,385,693 Effect of foreign exchange rates on cash and cash equivalents and restricted cash (7,334) 474 Net change in cash and cash equivalents and restricted cash $ (19,775) $ 68,009 Net Cash Provided By Operating Activities Net cash provided by operating activities decreased by $227.5 million in fiscal year 2022 compared to fiscal year 2021.
Table MD&A 9: Net Change in Cash and Cash Equivalents and Restricted Cash For the Year Ended September 30, 2023 2022 (in thousands) Operating activities: Net cash provided by operating activities $ 314,340 $ 289,839 Net cash used in investing activities (80,963) (54,009) Net cash used in financing activities (250,798) (248,271) Effect of foreign exchange rates on cash and cash equivalents and restricted cash 2,717 (7,334) Net change in cash and cash equivalents and restricted cash $ (14,704) $ (19,775) 33 Table of Contents Net Cash Provided By Operating Activities Net cash provided by operating activities increased by $24.5 million in fiscal year 2023 compared to fiscal year 2022.
We have included a table showing our reconciliation of these income measures to their corresponding GAAP measures. In order to sustain our cash flows from operations, we regularly refresh our fixed assets and technology.
We have included a table showing our reconciliation of these income measures to their corresponding GAAP measures.
Risk Factors and in "Special Note Regarding Forward-Looking Statements." Business Overview For an overview of our business, including our business segments and discussion of the services we provide, see Item 1. Business of this Annual Report on Form 10-K.
Business Overview For an overview of our business, including our business segments and discussion of the services we provide, see Item 1. Business of this Annual Report on Form 10-K. Financial Overview A number of factors have affected our fiscal year 2023 results, the most significant of which we have listed below.
Table MD&A 2: Changes in Revenue, Cost of Revenue, and Gross Profit for the Year Ended September 30, 2022 Revenue Cost of Revenue Gross Profit Dollars % Change Dollars % Change Dollars % Change (dollars in thousands) Fiscal year 2021 $ 4,254,485 $ 3,307,510 $ 946,975 Organic effect (249,058) (5.9) % (65,687) (2.0) % (183,371) (19.4) % Acquired growth 667,384 15.7 % 484,552 14.7 % 182,832 19.3 % Currency effect compared to the prior period (41,793) (1.0) % (35,167) (1.1) % (6,626) (0.7) % Fiscal year 2022 $ 4,631,018 8.9 % $ 3,691,208 11.6 % $ 939,810 (0.8) % Selling, general, and administrative expenses ("SG&A") consist of indirect costs related to general management, marketing, and administration.
Table MD&A 2: Changes in Revenue, Cost of Revenue, and Gross Profit for the Year Ended September 30, 2023 Revenue Cost of Revenue Gross Profit Dollars % Change Dollars % Change Dollars % Change (dollars in thousands) Fiscal year 2022 $ 4,631,018 $ 3,691,208 $ 939,810 Organic effect 326,745 7.1 % 235,859 6.4 % 90,886 9.7 % Disposal of businesses (22,050) (0.5) % (22,799) (0.6) % 749 0.1 % Acquired growth 4,179 0.1 % 2,297 0.1 % 1,882 0.2 % Currency effect compared to the prior period (35,164) (0.8) % (30,445) (0.8) % (4,719) (0.5) % Fiscal year 2023 $ 4,904,728 5.9 % $ 3,876,120 5.0 % $ 1,028,608 9.4 % 27 Table of Contents Selling, general, and administrative expenses Our SG&A expenses consist of indirect costs related to general management, marketing, and administration.
Federal Services Segment - Financial Results For the Year Ended September 30, 2022 2021 (dollars in thousands) Revenue $ 2,259,744 $ 1,893,284 Cost of revenue 1,740,304 1,460,733 Gross profit 519,440 432,551 Selling, general, and administrative expenses 284,509 243,485 Operating income 234,931 189,066 Gross profit percentage 23.0 % 22.8 % Operating margin percentage 10.4 % 10.0 % Table MD&A 6: U.S.
Federal Services Segment - Financial Results For the Year Ended September 30, 2023 2022 (dollars in thousands) Revenue $ 2,403,606 $ 2,259,744 Cost of revenue 1,845,720 1,740,304 Gross profit 557,886 519,440 Selling, general, and administrative expenses 308,197 284,509 Operating income 249,689 234,931 Gross profit percentage 23.2 % 23.0 % Operating margin percentage 10.4 % 10.4 % Our results for the year ended September 30, 2023, received revenue growth from Aidvantage and the increased volume on the VA medical disability examination ("MDE") contracts.
Having sold the invoice, the customer payment was received on September 30, 2022, resulting in excess cash flow. This cash receipt was treated as restricted cash and remitted to Wells Fargo in October 2022.
Prior to September 30, 2022, we sold a customer invoice for $60.4 million. Although we sold these receivables, we maintained administrative responsibilities over cash collection. Having sold the invoice, the customer payment was received on September 30, 2022, and was treated as restricted cash before being remitted to Wells Fargo in October 2022.
Table MD&A 4: Non-GAAP Adjusted Results Excluding Amortization of Intangible Assets For the Year Ended September 30, 2022 2021 (dollars in thousands, except per share data) Operating income $ 325,898 $ 408,530 Add back: Amortization of intangible assets 90,465 44,357 Adjusted operating income excluding amortization of intangible assets (Non-GAAP) $ 416,363 $ 452,887 Adjusted operating income margin excluding amortization of intangible assets (Non-GAAP) 9.0 % 10.6 % Net income $ 203,828 $ 291,200 Add back: Amortization of intangible assets, net of tax 66,786 32,752 Adjusted net income excluding amortization of intangible assets (Non-GAAP) $ 270,614 $ 323,952 Diluted earnings per share $ 3.29 $ 4.67 Add back: Effect of amortization of intangible assets on diluted earnings per share 1.08 0.52 Adjusted diluted earnings per share excluding amortization of intangible assets (Non-GAAP) $ 4.37 $ 5.19 Our interest expense increased from $14.7 million in fiscal year 2021 to $46.0 million in fiscal year 2022.
Table MD&A 14: Non-GAAP Adjusted Results - Operating Income, Net Income, and Diluted Earnings per Share For the Year Ended September 30, 2023 2022 (dollars in thousands, except per share data) Operating income $ 294,794 $ 325,898 Add back: Amortization of intangible assets 94,591 90,465 Add back: Divestiture-related charges 3,751 — Adjusted operating income excluding amortization of intangible assets and divestiture-related charges (Non-GAAP) $ 393,136 $ 416,363 Adjusted operating income margin excluding amortization of intangible assets and divestiture-related charges (Non-GAAP) 8.0 % 9.0 % Net income $ 161,792 $ 203,828 Add back: Amortization of intangible assets, net of tax 69,714 66,786 Add back: Divestiture-related charges 3,751 — Adjusted net income excluding amortization of intangible assets and divestiture-related charges (Non-GAAP) $ 235,257 $ 270,614 Diluted earnings per share $ 2.63 $ 3.29 Add back: Effect of amortization of intangible assets on diluted earnings per share 1.14 1.08 Add back: Effect of divestiture-related charges on diluted earnings per share 0.06 — Adjusted diluted earnings per share excluding amortization of intangible assets and divestiture-related charges (Non-GAAP) $ 3.83 $ 4.37 38 Table of Contents In order to sustain our net cash provided by operating activities, we regularly refresh our fixed assets and technology.
Free Cash Flow Table MD&A 12: Free Cash Flow For the Year Ended September 30, 2022 2021 (in thousands) Net cash provided by operating activities $ 289,839 $ 517,322 Purchases of property and equipment and capitalized software (56,145) (36,565) Free cash flow $ 233,694 $ 480,757 Material Cash Requirements from Contractual Obligations Credit Facilities As of September 30, 2022, we had total outstanding borrowing under our term loans and subsidiary loan agreements of $1.37 billion and $0.1 million, respectively.
Free Cash Flow (Non-GAAP) Table MD&A 10: Free Cash Flow (Non-GAAP) For the Year Ended September 30, 2023 2022 (in thousands) Net cash provided by operating activities $ 314,340 $ 289,839 Purchases of property and equipment and capitalized software (90,695) (56,145) Free cash flow (Non-GAAP) $ 223,645 $ 233,694 Material Cash Requirements from Contractual Obligations Credit Facilities Our principal debt agreement is with JPMorgan Chase Bank N.A.
Segment, where we are paid as individuals attain employment goals, which may take many months to achieve. We recognize revenue on these contracts over the period of performance. Our estimates vary from contract to contract but may include estimates of the number of participants reaching employment milestones and the service delivery period for participants reaching employment milestones.
Some of our performance-based contract revenue is recognized based upon future 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 milestones, which may take many months to achieve. We recognize revenue over the period of performance.
During the year ended September 30, 2022, we recognized revenue from these performance-based fees of $142.4 million. At September 30, 2022, we recorded $55.4 million of these estimated outcome fees as unbilled receivables which will be billed and then collected when we reach the targets we anticipate.
At September 30, 2023, we recorded $53.9 million of these estimated outcome fees as unbilled receivables, which will be billed and then collected when we reach the targets we anticipate. Business Combinations and Goodwill Our balance sheet as of September 30, 2023, includes $1.78 billion of goodwill and $703.6 million of net intangible assets.
Table MD&A 10: Backlog by Segment As of September 30, 2022 2021 (in millions) U.S. Federal Services $ 13,168 $ 4,298 U.S. Services 5,205 4,865 Outside the U.S. 1,441 2,052 Backlog $ 19,814 $ 11,215 At September 30, 2022, the average weighted remaining life of the contracts in our backlog was approximately 6.8 years, including option periods.
Services 4,851 5,205 Outside the U.S. 2,089 1,441 Backlog $ 20,740 $ 19,814 At September 30, 2023, the average weighted remaining life of the contracts in our backlog was approximately 5.92 years, including option periods. Increases in backlog result from the award of new contracts and the extension or renewal of existing contracts.
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.
For fiscal year 2024, we expect the effective tax rate to be between 24.5% and 25.5%. 28 Table of Contents U.S. Federal Services Segment 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.
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 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. During fiscal year 2023, we have also incurred losses on sales of businesses and taken an impairment charge on a business sold in early fiscal year 2024.
Acquired growth is from Connect Assist Holdings Limited, acquired in September 2021; BZ Bodies Limited, acquired in January 2022; and Stirling Institute of Australia Pty Ltd, acquired in June 2022. 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.
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. We recognize revenue over our period of performance, using estimates of our ability to place people in work and the time that this will take.
We anticipate operating margins will be in the low single digits. 32 Table of Contents Backlog Backlog represents estimated future revenue from: • existing signed contracts; • contracts that have been awarded but not yet signed; and • unexercised priced contract options. As of September 30, 2022, we estimate that we had approximately $19.8 billion in backlog.
As we establish our plans for fiscal year 2024 and beyond, the actions we consider may result in additional charges, including impairment of assets. 31 Table of Contents Backlog Backlog represents estimated future revenue from: • existing signed contracts; • contracts that have been awarded but not yet signed; and • unexercised priced contract options.
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 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.
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 Health Insurance British Columbia and 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. 31 Table of Contents Table MD&A 8: Outside the U.S.
We support programs and deliver services in the United Kingdom, including the Health Assessment Advisory Service ("HAAS") and the recently awarded replacement contract to start in 2024, Functional Assessment Services (“FAS”), and Restart; Australia, including Workforce Australia and employment support and job seeker services worldwide. Table MD&A 5: Outside the U.S.
Accordingly, we have included the effects of VES and Attain in the table below. The Credit Agreement also 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 Pro Forma Adjusted EBITDA as shown below.
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.
Removed
Financial Overview A number of factors have affected our fiscal year 2022 results, the most significant of which we have listed below. More detail on these changes is presented below within our "Results of Operations" section. • During fiscal year 2021, we acquired VES Group, Inc. ("VES") and the Federal Division of Attain, LLC ("Attain").
Added
More detail on these changes is presented below within our "Results of Operations" section. • Our operations within the United States received the benefit of contract growth, including a return to redetermination activity.
Removed
We acquired Aidvantage at the beginning of fiscal year 2022. These acquisitions have been supplemented by several smaller acquisitions in fiscal years 2021 and 2022. In fiscal year 2022, we recognized a full year of revenue and operating costs from the 2021 acquisitions and Aidvantage, as well as intangible asset amortization.
Added
As redetermination activity resumed during the year, this provided a benefit to both revenue and profit as volumes increased to match our resources. • Our Selling, General and Administrative ("SG&A") cost base has expanded with the growth of the business, including investments in our workforce and business infrastructure.
Removed
To fund the acquisition of VES, we entered into a new credit agreement with JPMorgan Chase N.A. (the Credit Agreement). The Credit Agreement provides both fixed-term debt and a new revolving credit facility.
Added
In addition, we recorded $29.3 million as the estimated costs for the investigation and remediation of a cybersecurity incident, $0.9 million related to the disposal of two businesses in fiscal year 2023, and $2.9 million of charges relating to sales completed in October 2023. • The cost of our debt has increased year-over-year as interest rates have risen. • The strength of the United States Dollar over the other currencies in which we do business has tempered our results in our Outside the U.S.
Removed
The cost of servicing this debt for a full year, as well as increasing interest rates, have resulted in an increase in our interest expense. • In both fiscal years 2021 and 2022, we received benefits from short-term work assisting governments with their responses to the COVID-19 pandemic.
Added
Our SG&A expenses have expanded through our growth, as well as investments made in our workforce and infrastructure.
Removed
This work was often profitable and mitigated profit declines on established programs where transaction volume was reduced. The short-term work declined by approximately $800 million compared to fiscal year 2021, but the ongoing Public Health Emergency ("PHE") has meant many of our established U.S. programs continue to operate at reduced capacity.
Added
In addition, our SG&A includes charges which are not directly connected to our day-to-day operations. • Our costs for the year ended September 30, 2023, include a $29.3 million expense incurred in the second half of the year for our best estimate of the investigation and remediation costs of a previously disclosed cybersecurity incident.
Removed
The timing and nature of the end of the PHE should have a favorable effect on our business. This could occur in fiscal year 2023. • Within our Outside the U.S. Segment, we recorded charges totaling $16.8 million on a single contract, anticipating a loss of the remaining life of the arrangement.
Added
As previously disclosed, the Company believes that the personal information of a significant number of individuals was accessed by an unauthorized third party by exploiting a zero-day vulnerability in a file transfer application used by the Company for internal and external file sharing purposes.
Removed
If our current forecast remains unchanged, this project is forecasted to record a breakeven profit over its remaining life. • Our Outside the U.S. Segment has benefited from the U.K. Restart contract, which commenced in late-fiscal year 2021.
Added
We have provided notices to individuals whose personal information, including social security numbers, protected health information, and/or other personal information, may have been included in the impacted files. • We include costs related to our acquisitions within SG&A.
Removed
This growing contract has offset declines within the same segment from the contraction of our Australian business. • During the fourth quarter of the fiscal year, we completed the sale of our former headquarters building.
Added
For the year ended September 30, 2023, we increased anticipated consideration for our Aidvantage business, which we acquired in fiscal year 2022, for consideration based upon future performance. • Our SG&A expense for the year ended September 30, 2023 also includes losses of $0.9 million relating to the sale of two small businesses and $2.9 million related to assets in businesses that were sold subsequent to year end.
Removed
Federal Cost Accounting Standards. 28 Table of Contents Our SG&A expense has increased year-over-year due primarily to the increased cost base from our acquisitions. Our SG&A for fiscal year 2021 includes $9.5 million of acquisition expenses, primarily related to the VES and Attain transactions. In fiscal year 2022, we had a lower level of acquisition activity.
Added
Interest expense Interest expense for fiscal year 2023 and 2022 increased from $46.0 million to $84.1 million. This increase is principally due to market rate increases. Our effective interest rate was 5.97% at September 30, 2023, compared to 4.69% at September 30, 2022, and 2.05% at September 30, 2021.
Removed
We have also recorded a net benefit of $3.4 million from a reduction in contingent considerations due to the sellers of our acquired businesses. Our amortization of intangible assets increased by $46.1 million from fiscal year 2021 to fiscal year 2022.
Added
We have mitigated our risk by fixing interest rates on $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 $6.1 million.
Removed
This is the result of acquisitions in both fiscal years, partially offset by amortization related to the Census Questionnaire Assistance contract, which was acquired in November 2018 and fully amortized through November 2020.
Added
Income taxes Our effective income tax rate for the year ended September 30, 2023 and September 30, 2022, was 23.1% and 26.4 %, respectively. The decrease in tax rate was primarily driven by higher tax credits and stock vesting benefits in the US, as well as a mix of jurisdictions where we recorded profit.
Removed
Table MD&A 3: Changes in Amortization of Intangible Assets Expense for The Year Ended September 30, 2022 Dollars % Change (dollars in thousands) Year Ending September 30, 2021 $ 44,357 VES acquisition 36,889 83.2 % Attain acquisition 4,375 9.9 % Aidvantage acquisition 7,432 16.8 % Other 2022 acquisitions 735 1.7 % CQA contract (2,313) (5.2) % Other, including foreign exchange (1,010) (2.3) % Year Ending September 30, 2022 $ 90,465 $ 90,465 Our intangible amortization expense is based upon assumptions of the value and economic life of assets acquired, typically established at the acquisition date.
Added
Profitability improvements from the VA MDE contracts were partially offset by our need to ramp up staffing for these contracts during the early part of the year in anticipation of the current higher volumes.
Removed
If these assumptions change, the pattern of future expense may be affected. The table below shows our results excluding the effects of intangible asset amortization.
Added
We anticipate that the growth in fiscal year 2023 will continue into fiscal year 2024, continuing to receive the benefit of new and expanded work on the VA MDE contracts.
Removed
This increase is driven by the costs of our cash borrowings utilized to acquire VES. As stated in Note 8 - Debt and Derivatives, our interest rate will vary based upon both prevailing interest rates and our leverage ratio. Additional details on our borrowings are included within the "Liquidity and Capital Resources" section.
Added
Operating margins are expected to range between 11% and 12% as the volume of work in the VA MDE contracts and the Aidvantage student loan business rises to meet our staffing levels.
Removed
Our other income and expense relates to miscellaneous expenses which do not relate to our ongoing operating or financing needs. In fiscal year 2021, we incurred $8.5 million related to interim financing for the VES acquisition. This financing was not used and the cost was expensed.
Added
Although a shutdown by the U.S. federal government may create challenges for our business, particularly if payments are delayed, we believe that a significant majority of our work is considered "essential" by the government and would be expected to have minimal disruption. U.S. Services Segment Our U.S.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

7 edited+2 added−3 removed2 unchanged
Biggest changeTable 7A.2: Exposure to Interest Rate Risk As of September 30, 2022 2021 (in thousands) 100 basis point increase impact on earnings $ (10,633) $ (10,600) 100 basis point decrease impact on earnings $ 10,633 $ 1,500 During the first quarter of fiscal year 2023, we reduced our exposure to interest rate changes through an additional interest rate swap with a notional amount of $200.0 million.
Biggest changeA 100 basis point change in interest rates would have the following impact of net income: Table 7A.2: Exposure to Interest Rate Risk As of September 30, 2023 2022 (in thousands) 100 basis point increase impact on net income $ (6,075) $ (10,633) 100 basis point decrease impact on net income $ 6,075 $ 10,633 Counterparty Risk We are exposed to credit losses in the event of nonperformance by the counterparties to our derivative instrument.
Table 7A.1: Exposure to Currency Risk As of September 30, 2022 2021 (in thousands) Change in comprehensive income attributable to Maximus $ 15,657 $ 18,900 Change in net monetary assets $ 6,127 $ 6,900 Change in cash and cash equivalents $ 3,867 $ 9,100 Where possible, we mitigate our foreign currency risks.
Table 7A.1: Exposure to Currency Risk As of September 30, 2023 2022 (in thousands) Change in comprehensive income attributable to Maximus $ 21,036 $ 15,657 Change in net monetary assets $ 9,171 $ 6,127 Change in cash and cash equivalents $ 3,113 $ 3,867 Where possible, we mitigate our foreign currency risks.
Of this balance, we had net monetary assets of $61.3 million and cash and cash equivalents of $38.7 million. We consider monetary assets to be those which hold a fair value close to their book value and which represent a recent cash outflow or which will become a cash inflow or outflow within a short period of time.
We consider monetary assets to be those which hold a fair value close to their book value and which represent a recent cash outflow or which will become a cash inflow or outflow within a short period of time.
Counterparty Risk We are exposed to credit losses in the event of nonperformance by the counterparties to our derivative instrument. Our counterparty has investment-grade credit ratings; accordingly, we anticipate that the counterparty will be able to fully satisfy their obligations under the contracts. Our agreement outlines the conditions upon which we or the counterparty are required to post collateral.
Our counterparty has investment-grade credit ratings; accordingly, we anticipate that the counterparty will be able to fully satisfy their obligations under the contracts. Our agreement outlines the conditions upon which we or the counterparty are required to post collateral. As of September 30, 2023, we had no collateral posted with our counterparty related to the derivatives. 40 Table of Contents
Item 7A. 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. Foreign Currency Risk As of September 30, 2022, we held net assets denominated in currencies other than the U.S. Dollar of $156.6 million.
Item 7A. 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 do not enter into financial instruments for trading purposes.
At September 30, 2022, we owed a gross balance of $1.4 billion associated with debt in the United States and in foreign locations. Our U.S. debt, in the form of term loans and a revolving credit facility, pay interest based upon a fixed rate and a market rate.
At September 30, 2023, we owed a gross balance of $1.26 billion associated with debt in the United States and in foreign locations. Our principal debt agreement incurs interest based upon a fixed rate, applicable spread, and a market rate. The market rate is based upon the Secured Overseas Funding Rate ("SOFR").
We mitigate this risk through an interest rate swap with a notional amount of $300.0 million related to one of the term loans. We based this sensitivity calculation on the LIBOR rate of 3.125% in accordance with the most recent measurement date specified in our credit agreement.
We based the following sensitivity calculation on the SOFR rate of 5.3% in accordance with the most recent measurement date specified in our Credit Agreement.
Removed
At September 2022, the market rate is based upon the London Interbank Offering Rate ("LIBOR"), which we anticipate switching to the Secured Overseas Funding Rate ("SOFR") during fiscal year 2023. A rise of interest rate levels would increase our interest expense, and a reduction in interest rates to the floor would decrease our interest expense.
Added
Foreign Currency Risk As of September 30, 2023, we held net assets denominated in currencies other than the U.S. Dollar of $210.4 million. Of this balance, we had net monetary assets of $91.7 million and cash and cash equivalents of $31.1 million.
Removed
A 100 basis point change in interest rates would have the following impact in annual earnings.
Added
A rise in interest rates would increase our interest expense, and a reduction in interest rates would decrease our interest expense. We mitigate this risk through interest rate swaps. At September 30, 2023, $650.0 million of our debt-carrying value was hedged with-fixed interest rate swaps.
Removed
As of September 30, 2022, we had no collateral posted with our counterparty related to the derivatives. 39 Table of Contents

Other MMS 10-K year-over-year comparisons