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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________________________

FORM 10-K
(Mark one)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2019
TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 1-12997
____________________________________________________________________________

MAXIMUS, INC.
(Exact name of registrant as specified in its charter)
Virginia
(State or other jurisdiction of
incorporation or organization)
 
54-1000588
(I.R.S. Employer
Identification No.)
1891 Metro Center Drive, Reston, Virginia
(Address of principal executive offices)
 
20190
(Zip Code)
Registrant's telephone number, including area code: (703251-8500
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, no par valueMMSNew York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ý    No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý
 
Accelerated filer o
 
Non-accelerated filer o
Smaller reporting company 
Emerging growth company  
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes     No ý
The aggregate market value of outstanding voting stock held by non-affiliates of the registrant as of March 29, 2019 was $4,470,336,229 based on the last reported sale price of the registrant's Common Stock on The New York Stock Exchange as of the close of business on that day.
There were 63,979,497 shares of the registrant's Common Stock outstanding as of November 19, 2019.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for its 2020 Annual Meeting of Shareholders to be held on March 17, 2020, which definitive Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of the registrant's fiscal year, are incorporated by reference into Part III of this Form 10-K.



MAXIMUS, Inc.
Form 10-K
September 30, 2019
Table of Contents

  
  
  
  


2


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Included in this Annual Report on Form 10-K are forward-looking statements within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as: “anticipate,” “intend,” “plan,” “goal,” “seek,” “opportunity,” “could,” “potential,” “believe,” “project,” “estimate,” “expect,” “strategy,” “future,” “likely,” “may,” “should,” “will” and similar references to future periods.
Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:
a failure to meet performance requirements in our contracts, which might lead to contract termination and actual or liquidated damages;
the effects of future legislative or government budgetary and spending changes;
our failure to successfully bid for and accurately price contracts to generate our desired profit;
our ability to maintain technology systems and otherwise protect confidential or protected information;
our ability to attract and retain executive officers, senior managers and other qualified personnel to execute our business;
our ability to manage capital investments and startup costs incurred before receiving related contract payments;
our ability to manage our growth, including acquired businesses;
the ability of government customers to terminate contracts on short notice, with or without cause;
our ability to maintain relationships with key government entities from whom a substantial portion of our revenue is derived;
the outcome of reviews or audits, which might result in financial penalties and impair our ability to respond to invitations for new work;
a failure to comply with laws governing our business, which might result in the Company being subject to fines, penalties, suspension, debarment and other sanctions;
the costs and outcome of litigation;
difficulties in integrating or achieving projected revenues, earnings and other benefits associated with acquired businesses;
the effects of changes in laws and regulations governing our business, including tax laws, and applicable interpretations and guidance thereunder, or changes in accounting policies, rules, methodologies and practices, and our ability to estimate the impact of such changes;
matters related to business we have disposed of or divested; and
other factors set forth in Exhibit 99.1, under the caption "Special Considerations and Risk Factors."
Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.
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PART I
ITEM 1.    Business.
Throughout this annual report, the terms "MAXIMUS," "Company," "we," "our" and "us" refer to MAXIMUS, Inc. and its subsidiaries.
General
We are a leading operator of government health and human services programs worldwide. We are a responsible and reliable contracting partner to governments under our mission of Helping Government Serve the People®. Governments rely on our financial stability and proven expertise in helping people connect and use critical government programs. We use our experience, business process management expertise, innovation and technology solutions to help government agencies run effective, efficient and accountable programs.
Our primary portfolio of work is tied to business process services (BPS) in the health services and human services markets. Our growth over the last decade was driven by new work, such as that from the Affordable Care Act (ACA) in the United States and a growing footprint in clinical services including assessments, appeals and independent medical reviews in multiple geographies, as well as acquisitions in the United States and United Kingdom.
In 2018, the Company articulated a long-term growth strategy with three key tenets including a digital transformation embedded in its service offerings, an aim to increase its growing clinical services and a desire to seek strategic acquisitions as a means to set the platform for organic growth.
We believe that demographic and legislative trends will provide our industry with further opportunities for growth and that our strong reputation within this industry, based upon our market leadership, strong financial position and experience, will allow us to benefit from this growth.
Demographic trends, including increased longevity and more complex health needs, place an increased burden on government social benefit and safety-net programs. At the same time, programs that address societal needs must be a good use of taxpayer dollars and achieve their intended outcomes. We believe the macro-economic trends of demographics and government needs, coupled with the need to achieve value for money, will continue to drive demand for our services.
We maintain a strong reputation within the government health and human services industry. Our deep client relationships and reputation for delivering outcomes and efficiencies creates a strong barrier to entry in a risk-averse environment. Entering our markets typically requires expertise in complex procurement processes, operation of multi-faceted government programs and an ability to serve and engage with diverse populations.
Our contract portfolio offers us good revenue visibility. Our contracts are typically multi-year arrangements and we have customer relationships which have lasted decades. Because of this longevity, our contract portfolio at any point in time can typically be used to identify approximately 90% of our anticipated revenue for the next twelve months.
We have a total company portfolio target operating profit margin that ranges between 10% and 15% with high cash conversion, a healthy balance sheet and access to a $400 million credit facility. Our financial flexibility allows us to fund investments in the business, complete strategic acquisitions to further supplement our core capabilities and seek new adjacent platforms.
To supplement our core business, we have an active program to identify potential strategic acquisitions. Our acquisitions have successfully enabled us to increase future organic growth, as well as expand our business processes, knowledge and client relationships into adjacent markets and new geographies. In November 2018, we acquired the citizen engagement centers business previously operated by General Dynamics Information Technology. This acquisition, coupled with our 2015 acquisition of Acentia, LLC, has provided increased scale, customer base and competitive advantages in our business with the United States Federal Government. Our primary clients are government agencies, with the majority at the national, state and provincial level. In the year ended September 30, 2019, approximately 40% of our total revenue was derived from U.S. State government agencies, 36% from agencies of the U.S. Federal Government, 19% from foreign government agencies and the balance from other sources including local municipalities and commercial customers.
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Our business segments
Since October 1, 2018, we have operated our business through three segments, U.S. Health & Human Services, U.S. Federal Services and Outside the United States. We operate in the United States, Australia, United Kingdom, Canada, Saudi Arabia and Singapore.
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 2019, 2018 and 2017 fiscal years, see "Note 2. Business segments" within Item 8 of this Annual Report on Form 10-K. All years have been presented using our current business segments.
U.S. Health and Human Services Segment
Our U.S. Health and Human Services Segment generated 41% of our total revenue in fiscal year 2019.
Our U.S. Health and Human Services Segment provides a variety of business process services such as program administration, appeals and assessments work and related consulting work for U.S. state and local government programs. These services support a variety of programs including the ACA, Medicaid and the Children’s Health Insurance Program (CHIP). We also serve as administrators in state-based welfare-to-work and child support programs.
Approximately 75% of our revenue for this segment comes from our comprehensive program administration services for government health benefit programs. The services we provide vary from program to program but may include:
Program eligibility support and enrollment services to help beneficiaries make the best choice for their health insurance coverage and improve their access to healthcare.
Centralized multilingual customer contact centers and multichannel self-service options for easy enrollment.
Application assistance and independent health plan enrollment counseling to beneficiaries.
Beneficiary outreach, education, eligibility, enrollment and renewal services.
We are a leading player in many of the health program administration markets that we serve.
We are the largest provider of Medicaid enrollment services in the U.S., serving approximately 70% of Medicaid beneficiaries enrolled in Medicaid managed care.
We are a leading provider of CHIP services and state-based health insurance exchange operations.
Approximately 12% of the Segment’s revenue is from our independent appeals and assessments services primarily under Medicaid Long-Term Care. 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. These include 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). We are a leading provider of such services in the United States.
Approximately 9% of the Segment’s revenue is from workforce and child services programs.
Workforce services cover a number of attributes including eligibility determination, case management, job-readiness preparation, job search and employer outreach, job retention and career advancement, and selected educational and training services. Child services include full and specialized child support case management services, customer contact center operations, and program and systems consulting services.
The rest of the Segment’s revenue is from specialized consulting services.
Payment for these services varies from contract to contract based upon factors such as the priorities of the customer and the willingness to share risks and rewards. Some contracts are performed on a cost-plus basis, where we receive revenue based upon the hours and costs incurred and which typically operate at lower margins. Most contracts include a level of performance-based compensation or a fixed fee, or a mixture of both with fees being based upon call volumes, populations served or appeals processed. Welfare-to-work programs typically incentivize us through payments to reward jobseekers finding sustained employment outcomes.
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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.
During fiscal year 2019, we earned 31% of our segment revenues from the State of New York. A small number of large states comprise a significant share of this segment's revenue. In addition, even when our direct clients are state governments, a significant amount of our revenue is ultimately funded via the U.S. Federal Government in the form of cost-sharing arrangements with the states, as is the case with Medicaid.
U.S. Health and Human Services Market Environment
According to the Organization for Economic Cooperation and Development (OECD), healthcare spending in the U.S. has been growing faster than other OECD high-income countries in spite of efforts to control it. Johns Hopkins Bloomberg School of Public Health research found that overall, U.S. health spending increased at an average rate of 2.8% annually between 2000 and 2016, which is greater than the OECD median annual increase of 2.6%. During the same period, U.S. gross domestic product (GDP) per capita increased by only 0.9% annually, which means that healthcare continues to represent a larger share of GDP. According to the Peterson-Kaiser Health Systems Tracker, U.S. healthcare spending in 2017 totaled 17% of GDP, compared to just 11% for the comparable OECD country average.

We believe that effectively managing these costs, as well as improving quality and access to healthcare, is a major policy priority for governments. Governments seek efficient and cost-effective solutions to manage their public health benefit programs. This includes programs meant to support individuals with disabilities and long-term medical conditions, as well as individuals with shorter-term health conditions.
In the U.S., as a result of Medicaid expansion and the ACA, more individuals are now eligible for health insurance coverage and there have been significant decreases in uninsured rates subsequent to the passage of the ACA. Over the last decade, many state Medicaid programs have also expanded managed care to new populations and new geographies that were historically served through fee-for-service Medicaid. More recently, some states are also seeking increased flexibility in the operations of their Medicaid programs via waivers requested through the Centers for Medicare & Medicaid Services. Some of these waivers include individual responsibility components such as beneficiary work requirements and co-pays for benefits. These waivers may create a more palatable path for additional states to contemplate new ways to operate their health benefit programs over the coming years. The issuance of waivers is contingent upon federal approval.
While the U.S. exceeds in health spending, its total spending looks more similar to comparable OECD countries when combined with other social services spending, such as human services, according to the Peterson-Kaiser Health System Tracker. Despite evidence that these social determinant programs could indirectly improve health, the U.S. spends less on non-health social services. The ACA connected health and human services by providing interest in preventative care, community needs and new forms of healthcare delivery and payment. This offers new opportunity to look thoughtfully at the integration of health and human services. By employing our strength in both health and human services, we are positioned to look closely at the impacts of social determinant of health and connection to additional services to address long-term health challenges with innovative and effective solutions. This however, is contingent upon local, state and federal policy change and implementation.
Many governments are also looking for innovative solutions to support disabled and elderly populations who require long-term services and supports (LTSS). A general trend in the LTSS market has been to ensure that individuals are in the right setting and receiving the right level of support and care. In many cases, this means allowing individuals to receive care at home or in a community-based setting, rather than institutional facilities. With no financial ties to health insurance plans or providers, our conflict-free assessment services assist governments in determining the most appropriate placement and healthcare services for program beneficiaries.
We believe the current health and human services market environment positions us to benefit from continued demand across all of our geographies from 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.
Our primary competitors are government in-sourced operations, Conduent, Automated Health Systems, Faneuil and KePro. In some services, we compete against specialized private companies and nonprofit organizations such as The Salvation Army and Goodwill Industries. We consider ourselves to be a significant competitor in the markets
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in which we operate as we are the largest provider of Medicaid and CHIP administrative programs and operate more state-based health insurance exchanges than any other commercial provider.
U.S. Federal Services Segment
Our U.S. Federal Services Segment generated 38% of our total revenue in fiscal year 2019.
Our U.S. Federal Services Segment provides program administration, appeals and assessments services and technology solutions, including system and software development and maintenance services, for various U.S. federal civilian programs. The Segment also contains certain state-based assessments and appeals work that is part of the Segment's heritage within the Medicare Appeals portfolio and continues to be managed within this segment.
Much of the recent growth in this segment came from our acquisition of the citizen engagement centers business at the beginning of fiscal year 2019. Within the portfolio, two significant contracts were acquired:
The contract to support the Centers for Medicare and Medicaid (CMS) Contact Center Operations (CCO) was the largest contract acquired. We had served as a subcontractor on this contract since 2014. This contract supports the federal exchange under the 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 11 customer contact centers handling general inquiries for the federal exchange and general and claims-based Medicare inquiries.
The Census Questionnaire Assistance 2020 (CQA) contract provides operations support and citizen engagement centers to provide questionnaire assistance on the 2020 United States Census form. This contract is scheduled to end in June 2021 following the completion of the Census.
The acquired contracts make up part of the Segment’s program administration business, which provides the majority of the Segment’s revenue. Our legacy contract base includes:
Centralized citizen engagement centers and support services,
Document and record management, and
Case management, citizen support and consumer education.
Approximately 15% of the Segment’s revenue is from our independent assessments and appeals services. These include:
Independent medical reviews and workers' compensation benefit appeals,
Medicare and Medicaid appeals, and
Program eligibility appeals.
Approximately 14% of the Segment’s revenue is from our technology solutions. These include:
Modernization of systems and information technology (IT) infrastructure,
Infrastructure operations and support,
Software development, operations and management, and
Data analytics.
Many contracts in this segment, including the acquired contracts, earn most of their revenue on a cost-plus or time-and-materials basis, which typically carry lower levels of risk and lower levels of profit margin as compared to performance-based contracts. The Segment also contains performance-based contracts where revenue is earned based upon participant numbers or other transaction-based measures, such as the number and type of assessments or appeals processed. The Segment may experience fluctuations as a result of volume variations or program maturity, with contracts recording lower revenue and profitability during program startup.
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With the acquisition of the citizen engagement centers business, we have the scale, capability and experience to offer our customer services in a wide range of areas. We have access to a number of significant contract vehicles across several agencies of the United States Federal Government.
The U.S. Federal Services Segment may experience some seasonality during open enrollment for the ACA and Medicare which begins in November and ends in January. In addition, the U.S. Census is expected to provide $360 million of revenue in fiscal year 2020 but with revenue concentrated in the critical months of the service during our second and third fiscal quarters.
U.S. Federal Services Market Environment
Following the 2016 Presidential election, the U.S. federal services market was impacted by the transition to the new U.S. administration. This initially hindered the federal procurement and decision-making process, causing an overall slowdown of work in some of our core areas.
While federal agency budgets still face fiscal pressures and the administration is looking for improved efficiencies, we continue to see opportunities to apply our cost-effective and efficient solutions to serve citizens in the federal market. Federal agencies are tasked with cost-effectively managing programs at a time when changing demographics are leading to rising caseloads in many federal programs.
Many federal agencies must also 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. We believe we are well positioned to help agencies modernize and operate their mission-critical systems.
Other key factors that will likely impact the U.S. federal market include a variety of political, economic, social and technological issues:
A focus on the citizen experience and citizen services, as well as digital services,
Agencies moving from transformation initiatives to operations and maintenance,
Agencies seeking consolidation and shared services to achieve cost efficiencies, and
Changes in the acquisition and contracting environment, including consolidation of contract vehicles, such as Alliant 2.
Our primary competitors are Serco, General Dynamics Information Technology, PAE and Conduent. Within the technology sector, our primary competitors are IBM, Oracle, Leidos, Accenture and other federal contractors.
Outside the United States Segment
Our Outside the U.S. Segment generated 21% of our total revenue in fiscal year 2019.
Our Outside the U.S. Segment provides BPS solutions for governments and commercial clients in geographies beyond the United States, including health and disability assessments, program administration for welfare-to-work services and other related services. We support programs and deliver services in the United Kingdom, including the Health Assessment Advisory Service (HAAS), the Work & Health Programme and Fair Start; Australia, including jobactive and the Disability Employment Service; Canada, including Health Insurance British Columbia and the Employment Program of British Columbia; Saudi Arabia and Singapore.
Approximately 46% of the Segment’s revenue is from comprehensive workforce services that 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, 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.
Appeals and assessments work constitutes 42% of this segment’s revenue. 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 to the customers we serve.
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The balance of the Segment provides program administration and some specialized services.
Our position within each national market is different. Within the United Kingdom and Australia we consider ourselves to be leading providers of services in those markets.
There is no significant seasonality within this segment.
Outside the United States Market Environment
We believe our established presence, healthy financial condition, strong brand recognition, and ability to achieve the requisite performance requirements and outcomes makes us well-positioned to compete for opportunities outside the U.S.
We offer clients demonstrated results and decades of proven experience in administering welfare-to-work programs in the U.K., Australia, Canada, Saudi Arabia and Singapore. In Australia, we are one of the largest welfare-to-work providers. We also have an established presence in the U.K.'s welfare-to-work market. As a result of a robust economy, low unemployment and a shift away from mainstream welfare-to-work programs, many of these programs are experiencing lower volumes. In this type of environment it can be challenging to consistently achieve outcomes-based incentives.
Further, many governments are shifting their focus to employment programs that serve individuals with disabilities or health conditions. Through our acquisition of Remploy in 2015, we increased our presence in the U.K. disability employment services market where we help people with disabilities and health conditions obtain employment. We do similar work in Australia under the Disability Employment Services program that aims to provide individuals with disabilities a supported path towards long-term employment. We are a recognized leader in the U.K and Australia for providing disability employment support services, having achieved accreditation in the U.K. as a Disability Confident Leader and in Australia as a Disability Confident Recruiter. We believe these services are transferable to our other geographies and position us well for emerging trends in the disability services market.
We believe ongoing initiatives and measures to reduce costs and improve efficiencies, combined with our outstanding performance, expertise and proven solutions, will continue to drive demand for our core human services offerings across multiple geographies. Our ability to provide value-for-money is important in a market that is very price competitive.
Our primary competitors in this segment include Atos, Capita, Interserve, Virgin Care, Optum, Serco, Staffline, Shaw Trust, Sarina Russo, Advanced Personnel Management and other specialized private companies and nonprofit organizations. 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. In some cases, clients award points for past performance tied to program outcomes.
Backlog
Our relationships with clients and our individual contracts, including option years, typically cover many years. At September 30, 2019, we estimate that we had approximately $9.0 billion in backlog. Backlog represents an estimate of the remaining future revenue from existing signed contracts and revenue from contracts that have been formally awarded, but not yet signed. Our backlog estimate includes revenue expected under the current terms of executed contracts and revenue from contracts in which the scope and duration of the services required are not definite but estimable (such as performance-based contracts).
At September 30, 2019, our backlog estimate included revenue expected from unexercised contract options to align with our sales opportunity tracking methodology. We believe the adoption of measuring total contract value, inclusive of options, is a more meaningful metric in our business. Although the exercise of options is uncertain, in our experience if the incumbent contractor is performing as expected these options are exercised nearly 100% of the time. In prior years, we did not include the value of these unexercised option periods and, accordingly, we have presented our backlog balance below showing totals excluding and including unexercised options. Our backlog estimate does not assume any contract renewals.
Increases in backlog result from the award of new contracts, the extension or renewal of existing contracts and the exercise of option periods. Reductions in backlog come from fulfilling contracts or the early termination of contracts. The backlog associated with our performance-based contracts is an estimate based upon management's experience of caseloads and similar transaction volume from which actual results may vary. We may modify our
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estimates related to performance-based contracts and as a result backlog from these contracts may increase or decrease based upon the information that management has at that time. Additionally, backlog estimates may be affected by foreign currency fluctuations.
Government contracts typically contain provisions permitting government clients to terminate contracts without cause with limited notice or compensation. Although we have experienced such terminations, they are a rare occurrence. We also risk losing revenue in the event of a shutdown by the U.S. Federal Government which may impact our U.S. Federal Segment and, to the extent that programs are federally funded, our U.S. Health and Human Services Segment. Many of our federally funded health and human services programs are typically deemed essential, which means that a short-term shutdown would not be expected to cause significant disruption to these operations.
We believe that period-to-period backlog comparisons are difficult and may not necessarily accurately reflect future revenue we may receive. The actual timing of revenue receipts, if any, on projects included in backlog could change for any of the aforementioned reasons. We also may experience periods in which there is a greater concentration of rebids resulting in a comparatively reduced backlog balance until subsequent award or extension on those contracts. The dollar amount by segment of our backlog as of September 30, 2019 and 2018 was as follows:
(in millions)Backlog as of
September 30,
20192018
U.S. Health and Human Services$3,305  $3,221  
U.S. Federal Services1,521  744  
Outside the U.S.1,427  1,335  
Backlog before options$6,253  $5,300  
Unexercised options2,722  
Backlog$8,975  
Our businesses typically involve contracts covering a number of years, including option periods. Contracts may include a period between contract signature and operations beginning for startup and transition activities where we are precluded from recognizing revenue. At September 30, 2019, the average weighted remaining life of the contracts in our backlog was approximately 3.4 years, including option periods. The longevity of these contracts assists management in predicting revenue, operating income and cash flows. We expect approximately one third of the backlog balance to be realized as revenue in fiscal year 2020. We adjust backlog annually for currency fluctuations and for estimated amounts associated with our performance-based contracts based upon the latest information that management has at that time.
Backlog represents more than 95% of current estimated fiscal year 2020 revenue.
Our growth strategy and competitive advantages
In all the markets and locations in which we operate, we are seeing consistent themes which drive our growth strategy.
Demographics
We are seeing increased longevity, driving more complex healthcare needs.
Individuals are experiencing financial hardships and other barriers that require a combination of social safety-net programs and support into work.
Governments are focusing on citizen responsibility and engagement as a condition of receiving benefits.
We believe that programs that focus on measurable outcomes can cost-effectively address this need.
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Decentralization
Within the United States, the U.S. Federal Government is exploring per capita funding and also recently clarified federal regulations that now allow states the flexibility to use contractors for government support services that were previously managed by state-based employees.
Within the United Kingdom, we are seeing devolution of programs to local authorities.
We believe that these changes to funding and government mechanics allows state and local authorities enhanced flexibility to shape their benefit programs.
Value for spend
Our partners are mandating that programs to address societal need be a good use of taxpayer dollars and achieve their intended outcomes.
Governments are increasing accountability by laying out performance expectations and rewarding partners who deliver while penalizing those who do not.
We believe that this environment favors companies like MAXIMUS. Governments can trust MAXIMUS as a responsible contractor that is financially stable, has proven expertise and can deliver complex government programs in a transparent and independent fashion.
We are addressing these themes with a three-fold strategy.
We are using digital technologies to transform the experience of our customers and our employees. These technologies can help our governments run their programs in a more streamlined manner and make it easier for individuals to interact with these programs.
We are expanding our clinical-related services. We have established an extensive set of services that frequently requires a network of healthcare professionals who can complete clinical assessments, provide occupational health and independent medical review services and adjudicate complicated benefits appeals.
We continue with our existing strategy to expand our markets through bringing core capabilities to new programs and clients, by adding new capabilities to access adjacent markets and through geographic expansion.
Our competitors may be other private corporations or government in-sourced operators. We offer a private sector alternative for the operation and management of critical government-funded health and human services programs. We believe our reputation and extensive experience give us a competitive advantage as governments value the level of expertise, proven delivery and brand recognition that we bring to our clients. Some of the competitive advantages that allow us to capitalize on various market opportunities are as follows.
Proven track record, ability to deliver outcomes and exceptional brand recognition. We assist governments in delivering cost-effective services to beneficiaries of government programs. We run large-scale, and often complex, program management operations on behalf of government agencies, improving the quality of services provided to their beneficiaries and achieving the necessary outcomes to help the government agencies cost-effectively meet their program goals. This has further enhanced our brand recognition as a proven partner with government agencies.
Subject matter, clinical and digital expertise. Our workforce includes many individuals who possess substantial subject matter expertise in areas critical to the successful design, implementation, administration and operation of government health and human services programs. We also employ a diverse set of experts including a wide network of clinicians and an experienced team of digital champions. Many of our employees have worked for governments in management positions and can offer insights into how we can best provide valuable, practical and effective services to our clients.
Intellectual property that supports the administration of government programs. We have proprietary solutions to address client requirements in our markets that are configurable or provide a platform that can be utilized with other clients. We leverage commercial off-the-shelf platforms across multiple contracts in which we have considerable expertise to ensure we can deploy repeatable proven solutions. We also leverage software development methodologies to shorten development cycles. Extensive use of shared infrastructure and standard solutions
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provides considerable price and quality advantages. We believe our extensive industry focus and expertise embedded in our systems and processes provide us with a competitive advantage.
Digital engagement, analytics and automation solutions to enhance government programs. Participants in government programs expect the same types of digital engagement they rely upon when interacting with consumer-oriented businesses. We believe our clients value our ability to infuse digital, such as mobile applications and social media, into our BPS solutions to make it easier for beneficiaries to engage with government programs. Analytics enable us to optimize our operations and provide our clients with improved outcomes through greater insight into the populations we serve. Process automation incorporated into our BPS solutions increases the efficiency and quality of the programs we operate.
Flexibility and scalability. We are experienced in launching large-scale operations under compressed time frames. 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. 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 $400 million through our credit facility, subject to standard covenants. We have the ability to borrow under our credit facility in all of the principal currencies in which we operate. We believe we have strong, constructive relationships with the lenders on our credit facility. We believe our financial strength provides reassurance to government agencies that we will be able to establish and maintain the services they need to operate high-profile public health and human services programs. 
Focused portfolio of services. We are one of the largest publicly traded companies that provides a portfolio of BPS almost exclusively to government customers. Our government program expertise and proven ability to deliver defined, measurable outcomes differentiate us from other firms and nonprofit organizations, including large consulting firms that serve multiple industries and lack the focus necessary to manage the complexities of serving government agencies efficiently.
Established presence outside the United States. 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 and Singapore. Our international efforts are focused on delivering cost-effective welfare-to-work and health benefits services to program participants on behalf of governments.
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 vary 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. With more than 40 years of experience in responding to RFPs, we believe we have the necessary experience and resources to navigate government procurement processes and to assess and allocate the appropriate resources necessary for successful project completion in accordance with contractual terms.
Barriers to entry. The market for providing our services to government agencies is competitive and subject to rapid change. However, given the specialized nature of our services and the programs we serve, market entry can be difficult for new or inexperienced firms. 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. 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.
Legislative initiatives
We actively monitor legislative initiatives and respond to opportunities as they develop. Much of our work depends upon us reacting quickly to dynamic changes in the legislative landscape to assist with implementation of new legislation. Over the past several years, legislative initiatives created new growth opportunities and potential markets for us. Legislation passed in all the geographies in which we operate can have significant public policy
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implications for all levels of government and presents viable business opportunities in the health and human services arena.
Some legislative initiatives that have created new growth opportunities for MAXIMUS are as follows.
The Affordable Care Act (ACA). Enacted in 2010 and upheld through a Supreme Court decision in 2012, the ACA introduced comprehensive healthcare reform in the United States. In our U.S. Health and Human Services Segment, we have helped states with the operation of their health insurance exchanges, the expansion of their Medicaid programs to include new populations and the integration of state eligibility processing across multiple entitlement programs. In our U.S. Federal Services Segment, we have also assisted the federal government with the operations of customer engagement centers for the Federal Marketplace and independent eligibility appeals services for federal exchange plan members.
We believe we remain well-positioned to assist the federal government and individual states with future modifications to the ACA, including those made through waivers.
Section 1115 Waiver Programs. Section 1115 of the Affordable Care Act allows states to apply for waivers of certain requirements provided that the program changes are budget neutral and advance the goals of the Medicaid program. Forty-three states currently operate at least part of their Medicaid programs under section 1115 demonstrations. As CMS has approved community engagement requirements under section 1115, we have supported the implementation of those efforts by providing member contact services in several states. In addition, we have supported states’ new long-term services and supports initiatives that have introduced more flexibility for Medicaid to cover long term care and home and community-based services.
Children's Health Insurance Program Reauthorization Act (CHIPRA). CHIPRA was signed into law on February 2, 2009, extending the previous State Children's Health Insurance Program (SCHIP). As part of the Bipartisan Budget Act of 2018, CHIP has been extended and funded through 2027.
Medicaid and CHIP Managed Care Regulations. In 2016, the Centers for Medicare & Medicaid Services issued managed care regulations and federal standards for the Medicaid and CHIP programs. These include enhancing support for consumers, improving health care delivery and quality of care, providing greater access to healthcare, and ensuring a modern set of rules that better align with the marketplace and Medicare Advantage plans. They also reinforce ongoing efforts to modernize and streamline the enrollment process and the continued value of independent choice counseling. The Trump administration is working on revisions to these regulations and the proposed regulation for comment retains enhanced support for consumers provided by MAXIMUS in many states.
   Work Innovation and Opportunity Act (WIOA). Signed into law in July 2014, WIOA replaced the Workforce Investment Act of 1998 and took effect on July 1, 2015. The law coordinates several core federal employment, training, education and literacy programs. It also requires states to strategically align their workforce development programs, with the option to include Temporary Assistance to Needy Families (TANF), to help job seekers access the necessary support services and to match employers with skilled workers they need to compete in the global economy. WIOA represents potential new opportunities for us to complement our existing TANF welfare-to-work operations in the U.S.
Office of Personnel Management (OPM) Notice. In April 2019, OPM published a notice in the federal register encouraging states to exercise new flexibility to choose private contractors to support states’ operation of federally funded, state-administered means-tested programs such as the Supplemental Nutrition Assistance Program (SNAP) and Medicaid. The notice states that federal statutes and regulations “do not prescribe the use of a particular staffing method such as utilizing state employees or contract employees." We are currently exploring new businesses with several states and have executed a contract vehicle with one.
The Welfare Reform Act of 2007 (United Kingdom). The Welfare Reform Act of 2007 replaced Incapacity Benefit with the Employment and Support Allowance and introduced the Work Capability Assessment (WCA). The WCA is designed to provide advice to the Government on those who can not work due to disability or health-related problems, those who are "fit for work" as defined by the legislation and those that, with additional support, could eventually return to work. In 2010, the U.K. Government decided to reassess the 1.5 million people who had previously been determined to be eligible to receive incapacity benefits. The U.K. Government also decided that an independent health assessment provided by a vendor partner is the best method for the government to determine the level of benefits for individuals with long-term sickness or disabilities. We have been providing assessments through the resulting HAAS contract on behalf of the Department for Work and Pensions (DWP) since March 2015.
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The Cities and Local Government Reform Act of 2016 (United Kingdom). The Act enabled devolution deals to be agreed with cities and regions that devolved selected powers including adult skills budgets, employment support and health and social care. We provide employment support through the devolved Work and Health Programme in East London and deliver specialist employment and health initiatives in Greater Manchester and the West Midlands. We also provide further education services in London and Manchester through the devolved Adult Education Budget.
Employees
As of September 30, 2019, we had approximately 29,600 employees, consisting of 9,400 employees in the U.S. Health and Human Services Segment, 13,300 employees in our U.S. Federal Services Segment, 6,200 employees in the Outside the U.S. Services Segment and 700 corporate administrative employees.
Our success depends in large part on attracting, retaining and motivating talented, innovative, experienced and educated professionals at all levels. MAXIMUS believes in the importance of employee engagement and wellbeing. In the fall of 2018, MAXIMUS conducted an engagement survey of all global employees. 86% of respondents reported positive employee engagement and 89% of respondents believed that MAXIMUS leadership enables a culture of diversity and inclusion.
As of September 30, 2019, 484 of our employees in Canada were covered under three different collective bargaining agreements, each of which has different components and requirements. There are 472 employees covered by two collective bargaining agreements with the British Columbia Government and Services Employees' Union and 12 employees covered by a collective bargaining agreement with the Professional Employees Association. These collective bargaining agreements expire in 2020.
As of September 30, 2019, 1,447 of our employees in Australia were covered under a Collective Agreement, which is similar in form to a collective bargaining agreement. The Collective Agreement is renewed annually.
As of September 30, 2019, 346 of our employees in the U.K. were covered under a collective bargaining agreement with GMB Trade Union and Unite Amicus Trade Union. These collective bargaining agreements do not have expiration dates.
None of our other employees are covered under any similar agreement. We consider our relations with our employees to be good.
Other information
MAXIMUS, Inc. is a Virginia corporation, founded in 1975.
Our principal executive offices are located at 1891 Metro Center Drive, Reston, Virginia, 20190. Our telephone number is 703-251-8500.
Our website address is maximus.com. We make our website available for informational purposes only. It should not be relied upon for investment purposes, nor is it incorporated by reference into this Annual Report on Form 10-K.
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). 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 their website at www.sec.gov.
ITEM 1A.    Risk Factors.
Our operations are subject to many risks that could adversely affect our future financial condition, results of operations and cash flows and, therefore, the market value of our securities. See Exhibit 99.1 of this Annual Report on Form 10-K under the caption "Special Considerations and Risk Factors" for information on risks and uncertainties that could affect our future financial condition and performance. The information in Exhibit 99.1 is incorporated by reference into this Item 1A.
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ITEM 1B.    Unresolved Staff Comments.
None.
ITEM 2.    Properties.
We own a 60,000 square-foot office building in Reston, Virginia. We also lease offices for operations, management and administrative functions in connection with the performance of our services. At September 30, 2019, we leased approximately 130 offices in the U.S. totaling approximately 4.2 million square feet. In five countries outside the U.S., we leased approximately 300 offices totaling approximately one million square feet. The lease terms vary from month-to-month to ten-year leases and are generally at market rates. In the event that a property is used for our services in the U.S., we typically negotiate clauses to allow termination of the lease if the service contract is terminated by our customer. Such clauses are not standard in foreign leases.
We believe that our properties are maintained in good operating condition and are suitable and adequate for our purposes.
ITEM 3.    Legal Proceedings.
We are subject to audits, investigations and reviews relating to compliance with the laws and regulations that govern our role as a contractor to agencies and departments of the U.S. Federal Government, state, local, and foreign governments, and otherwise in connection with performing services in countries outside of the U.S. Adverse findings could lead to criminal, civil or administrative proceedings, and we could be faced with penalties, fines, suspension or disbarment. Adverse findings could also have a material adverse effect on us because of our reliance on government contracts. We are subject to periodic audits by federal, state, local and foreign governments for taxes. We are also involved in various claims, arbitrations, and lawsuits arising in the normal conduct of our business. These include but are not limited to, bid protests, employment matters, contractual disputes and charges before administrative agencies. Although we can give no assurance, based upon our evaluation and taking into account the advice of legal counsel, we do not believe that the outcome of any pending matter would likely have a material adverse effect on our consolidated financial position, results of operations or cash flows.
Securities class action lawsuit
In August 2017, the Company and certain officers were named as defendants in a putative class action lawsuit filed in the U.S. District Court for the Eastern District of Virginia. The plaintiff alleged the defendants made a variety of materially false and misleading statements, or failed to disclose material information, concerning the status of the Company’s Health Assessment Advisory Service project for the U.K. Department for Work and Pensions from the period of October 20, 2014, through February 3, 2016. In August 2018, our motion to dismiss the case was granted, and the case was dismissed. In October 2018, the plaintiffs filed a notice of appeal to the U.S. Circuit Court for the Fourth Circuit. In June 2019, the appeals court affirmed the decision of the District Court, and the matter has concluded.
Medicaid claims
A state Medicaid agency has been notified of two proposed disallowances by the Centers for Medicare and Medicaid Services (CMS) totaling approximately $31.0 million. From 2004 through 2009, we had a contract with the state agency in support of its school-based Medicaid claims. We entered into separate agreements with the school districts under which we assisted the districts with preparing and submitting claims to the state Medicaid agency which, in turn, submitted claims for reimbursement to CMS. The state has asserted that its agreement with us requires us to reimburse the state for the amounts owed to CMS. However, our agreements with the school districts require them to reimburse us for such amounts, and therefore we believe the school districts are responsible for any amounts that ultimately must be refunded to CMS. Although it is reasonably possible that a court could conclude we are responsible for the full balance of the disallowances, we believe our exposure in this matter is limited to our fees associated with this work and that the school districts will be responsible for the remainder. We have reserved our estimated fees earned from this engagement relating to the disallowances. We exited the federal healthcare-claiming business in 2009 and no longer provide the services at issue in this matter. No legal action has been initiated against us.

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ITEM 4.    Mine Safety Disclosures
Not applicable.
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PART II
ITEM 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock trades on the New York Stock Exchange (NYSE) under the symbol "MMS."
As of October 24, 2019, there were 38 holders of record of our outstanding common 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 32,500 beneficial owners of our common stock.
During the first fiscal quarter of 2020, we declared a quarterly dividend of $0.28 per share of MAXIMUS stock. In fiscal year 2019, we declared and paid quarterly dividends of $0.25 per share. During fiscal years 2018 and 2017, the quarterly dividend was $0.045 per share. We intend to continue paying regular cash dividends, although there is no assurance as to future dividends. Future cash dividends, if any, will be paid at the discretion of our Board of Directors and will depend, among other things, upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors our Board of Directors may deem relevant.
The following table sets forth information regarding purchases of common stock that we made during the three months ended September 30, 2019:
PeriodTotal
Number of
Shares
Purchased
Average
Price Paid
per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans(1)
Approximate Dollar
Value of Shares that
May Yet Be
Purchased
Under the Plan
(in thousands)
July 1, 2019 - July 31, 2019—  $—  —  $147,420  
August 1, 2019 - August 31, 201919,794  69.62  19,794  146,043  
September 1, 2019 - September 30, 2019 (2)137,374  77.26  —  146,043  
Total157,168  19,794   
______________________________________________
(1)Under a resolution adopted in June 2018, the Board of Directors authorized the purchase, at management's discretion, of up to an aggregate of $200 million of our common stock. The resolution also authorized the use of option exercise proceeds for the purchase of our common stock.
(2)The total number of shares purchased includes 137,374 restricted stock units which vested in September 2019 but which were utilized by the recipients to net-settle personal income tax obligations.
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Stock Performance Graph
The following graph compares the cumulative total shareholder return on our common stock for the five-year period from September 30, 2014, to September 30, 2019, with the cumulative total return for the NYSE Stock Market (U.S. Companies) Index. In addition, we have compared the results of a peer group to our performance. Our peer group is based upon the companies noted in our annual proxy statement as entities with whom we compete for executive talent. Our peer group in 2018 (the prior year peer group) was comprised of Booz Allen Holding Corp., CACI International Inc., Conduent, Inc., Gartner Inc., ICF International, Inc., ManTech International Corp., SAIC and Unisys Corp. Our peer group in fiscal year 2019 is the same as the prior year peer group with the addition of Leidos, Inc.
This graph assumes the investment of $100 on September 30, 2014, in our common stock, the NYSE Stock Market (U.S. Companies) Index and our peer groups, weighted by market capitalization and assumes dividends are reinvested.
mms-20190930_g1.jpg
________________________________________________
Notes:
A. The lines represent index levels derived from compounded daily returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading day, the preceding trading day is used.
D. The index level for all series was set to $100.00 on September 30, 2014.

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ITEM 6.    Selected Financial Data.
We derived the selected consolidated financial data presented below from our consolidated financial statements and the related notes. The revenue and operating results related to the acquisition of companies are included from the respective acquisition dates. The selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included as Item 7 of this Annual Report on Form 10-K and with the Consolidated Financial Statements and related Notes included as Item 8 of this Annual Report on Form 10-K. The historical results set forth in this Item 6 are not necessarily indicative of the results of operations to be expected in the future.
Effective October 1, 2018, we adopted Accounting Standard Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), using the modified retrospective method. Accordingly, the results shown reflect the adoption of Topic 606 in our year ended September 30, 2019 but all other years are reported under our previous accounting policy. See "Note 1. Business and summary of significant accounting policies" and "Note 3. Revenue recognition" in Item 8 of this Annual Report on Form 10-K for more details.
 Year Ended September 30,
 20192018201720162015
 (In thousands, except per share data)
Consolidated statements of operations data:     
Revenue$2,886,815  $2,392,236  $2,450,961  $2,403,360  $2,099,821  
Operating income317,107  295,483  313,512  286,603  259,832  
Net income attributable to MAXIMUS240,824  220,751  209,426  178,362  157,772  
Basic earnings per share attributable to MAXIMUS$3.73  $3.37  $3.19  $2.71  $2.37  
Diluted earnings per share attributable to MAXIMUS$3.72  $3.35  $3.17  $2.69  $2.35  
Weighted average shares outstanding:    
Basic64,498  65,501  65,632  65,822  66,682  
Diluted64,820  65,932  66,065  66,229  67,275  
Cash dividends per share of common stock$1.00  $0.18  $0.18  $0.18  $0.18  
 
 At September 30,
 20192018201720162015
 (In thousands)
Consolidated balance sheet data:     
Cash and cash equivalents$105,565  $349,245  $166,252  $66,199  $74,672  
Total assets1,745,732  1,462,000  1,350,662  1,348,819  1,271,558  
Debt9,658  510  668  165,615  210,974  
Total MAXIMUS shareholders' equity1,247,792  1,083,867  940,085  749,081  612,378  

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ITEM 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of financial condition and results of operations is provided to enhance the understanding of, and should be read in conjunction with, our Consolidated Financial Statements and the related Notes.
For an overview of our business, including our business segments and a discussion of the services we provide, see Item 1 of this Annual Report on Form 10-K.
Financial overview
On November 16, 2018, we acquired the citizen engagement centers business which was integrated into our U.S. Federal Services Segment.
The acquisition directly increased the revenue and gross profit of our U.S. Federal Services Segment by $615.1 million and $117.4 million, respectively. The portfolio acquired includes assistance on the U.S. Census which is anticipated to result in significant revenue in fiscal year 2020.
Although our administrative cost base increased with the need to cover the costs of a larger organization, our existing cost base is being spread over a broader revenue base. As our general and administrative costs are allocated to our operating segments, the acquisition is providing a benefit to our profit margins in all of our segments.
We recorded incremental amortization expense of $23.7 million in fiscal year 2019 and anticipate amortization of $27.0 million in fiscal year 2020 related to this acquisition. Amortization expense will decrease in fiscal year 2021 as the intangible asset related to the U.S. Census contract will be fully amortized.
We incurred acquisition-related expenses of $2.7 million as a result of the transaction, including legal and advisory costs, integration expenses, valuation services and other consultancy costs.
The transaction required a payment of $430.7 million, which included an adjustment for working capital which was unusually high at the time of the transaction due to the timing of billings and employee payroll. The excess capital has been realized in subsequent months through our operating cash flows.
We funded the acquisition through $150 million from our credit facility and our existing cash balances. This reduced our net interest income in fiscal year 2019. We repaid this loan in full during the fiscal year.
Our business received a benefit from the Tax Cuts and Jobs Act in the United States, which was passed during fiscal year 2018. This reduced the U.S. Federal tax rate to 21% from 35% in fiscal year 2017 and resulted in a significant reduction in our tax charge and related cash flows.
The continued strength of the United States Dollar against the other currencies in which we do business resulted in a relative decline in the size of our business outside the United States.
Our operating segments are each affected by different factors as covered in more detail below. Since October 1, 2018, we have conducted our operations through three business segments: U.S. Health and Human Services, U.S. Federal Services and Outside the U.S. Our results have been presented below as though these segments had been in place for all three years ended September 30, 2019.
In addition to our acquisitions and our ongoing share buyback program, we increased our quarterly dividend during fiscal year 2019, from $0.045 to $0.25 per share of MAXIMUS common stock. We have announced a further increase in our quarterly dividend to $0.28 per share per quarter, starting in the first quarter of fiscal year 2020.
International businesses
We operate in several international locations. Accordingly, we transact business in currencies other than the U.S. Dollar, principally the Australian Dollar, the Canadian Dollar, the Saudi Arabian Riyal, the Singapore Dollar and the British Pound. During the year ended September 30, 2019, we earned approximately 21% and 5% of revenue and operating income, respectively, from our foreign subsidiaries. International business exposes us to certain risks.
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Tax regulations may penalize us if we transfer funds or debt across international borders; accordingly, we may not be able to use our cash in the locations where needed. The passage of the Tax Cuts and Jobs Act in the United States in December 2017 eliminated many of these incremental penalties. As a result, we remitted a significant portion of our cash to the United States. Although this has been a significant benefit, some international transaction limitations still exist and there is no guarantee that the current U.S. tax regime will remain in place. To mitigate our risks with respect to transferring funds, we maintain sufficient working capital, or have sufficient capital available to us under our credit facility, both within and outside the U.S., to support the short-term and long-term capital requirements of the businesses in each region. We establish our legal entities to make efficient use of tax laws and holding companies to minimize this exposure. At September 30, 2019, we held $20.3 million of cash outside the United States, of which $18.9 million was held in currencies other than the U.S. Dollar.
We are subject to exposure from foreign currency fluctuations. Our foreign subsidiaries typically incur costs in the same currency as they earn revenue, thus limiting our exposure to unexpected currency fluctuations. Further, the operations of the U.S. business do not depend upon cash flows from foreign subsidiaries. However, declines in the relevant strength of foreign currencies against the U.S. Dollar will affect our revenue mix, profit margin and tax rate.
Summary of consolidated results
The following table sets forth, for the fiscal years indicated, information derived from our statements of operations.
 Year ended September 30,
(dollars in thousands, except per share data)201920182017
Revenue$2,886,815  $2,392,236  $2,450,961  
Cost of revenue2,215,631  1,797,851  1,839,056  
Gross profit671,184  594,385  611,905  
Gross profit margin23.2 %24.8 %25.0 %
Selling, general and administrative expense321,023  285,241  284,593  
Selling, general and administrative expense as a percentage of revenue11.1 %11.9 %11.6 %
Amortization of intangible assets33,054  10,308  12,208  
Restructuring costs—  3,353  2,242  
Gain on sale of a business—  —  650  
Operating income317,107  295,483  313,512  
Operating income margin11.0 %12.4 %12.8 %
Interest expense2,957  1,000  2,162  
Other income, net3,170  4,726  2,885  
Income before income taxes317,320  299,209  314,235  
Provision for income taxes76,825  78,393  102,053  
Effective tax rate24.2 %26.2 %32.5 %
Net income240,495  220,816  212,182  
(Loss)/income attributable to noncontrolling interests(329) 65  2,756  
Net income attributable to MAXIMUS$240,824  $220,751  $209,426  
Basic earnings per share attributable to MAXIMUS$3.73  $3.37  $3.19  
Diluted earnings per share attributable to MAXIMUS$3.72  $3.35  $3.17  
The following tables provide an overview of the significant elements of our consolidated statements of operations including information about our business segments and the factors driving revenue growth and profitability.
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Revenue, cost of revenue and gross profit

Our revenue reflects fees earned for services provided. Cost of revenue consists of direct costs related to labor and related overhead, subcontractor labor, outside vendors, rent and other direct costs. The largest component of cost of revenue, approximately two-thirds, is labor (both our labor and subcontracted labor). Changes in revenue, cost of revenue and gross profit between fiscal years 2017 and 2019 are summarized below.

 RevenueCost of RevenueGross Profit
Dollars in thousandsPercentage change from prior yearDollars in thousandsPercentage change from prior yearDollars in thousandsPercentage change from prior year
Balance for fiscal year 2017$2,450,961   $1,839,056   $611,905   
Organic growth/(decline)(83,409) (3.4)%(60,873) (3.3)%(22,536) (3.7)%
Acquired growth1,096  — %799  — %297  — %
Currency effect compared to the prior period23,5881.0 %18,869  1.0 %4,719  0.8 %
Balance for fiscal year 2018$2,392,236  (2.4)%$1,797,851  (2.2)%$594,385  (2.9)%
Organic growth/(decline)(85,635) (3.6)%(49,782) (2.8)%(35,853) (6.0)%
Acquired growth615,656  25.7 %498,010  27.7 %117,646  19.8 %
Currency effect compared to the prior period(35,442) (1.5)%(30,448) (1.7)%(4,994) (0.8)%
Balance for fiscal year 2019$2,886,815  20.7 %$2,215,631  23.2 %$671,184  12.9 %

Changes in revenue and gross profit between the fourth quarter of fiscal year 2018 and the fourth quarter of fiscal year 2019 are shown below.
RevenueCost of RevenueGross Profit
Dollars in thousandsPercentage change from prior yearDollars in thousandsPercentage change from prior yearDollars in thousandsPercentage change from prior year
Balance for three months ended September 30, 2018$558,446  $419,508  $138,938  
Organic growth/(decline)28,783  5.2 %32,532  7.8 %(3,749) (2.7)%
Acquired growth175,009  31.3 %140,926  33.6 %34,083  24.5 %
Currency effect compared to the prior period(7,272) (1.3)%(6,250) (1.5)%(1,022) (0.7)%
Balance for three months ended September 30, 2019$754,966  35.2 %$586,716  39.9 %$168,250  21.1 %

We have shown movements in revenue, cost of revenue and gross profit in three categories: organic growth/(decline), acquired growth and currency effects.
Our organic revenue growth or decline reflects changes in our contract portfolio from our existing business, supplemented with new work. Most of our contracts are multi-year arrangements, built upon long-term relationships which allow us to maintain a strong backlog of work to sustain our revenues. In any year, we anticipate approximately 7% to 10% attrition of work as contracts end or are lost; contracts are rebid with reduced volumes, scope, rates or a combination of all three; contracted work is in-sourced by our customer or we elect not to rebid. We also maintain a small portfolio of non-recurring short-term projects. To achieve organic growth, we must obtain more work than is lost. We have experienced organic declines in our business across all three of our segments during the past two fiscal years driven by different factors. These are addressed in more detail below.
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Our acquisitions provide additional growth to our contract portfolio, offset by divestitures. We show acquired revenue and costs for one year after the date of the acquisition to allow for a like-for-like comparison. Acquired growth in fiscal year 2019 was from our citizen engagement centers business acquisition within our U.S. Federal Services business and the results of our fourth quarter acquisitions of GT Hiring Solutions, which is in our Outside the U.S. Segment. Our acquired growth in fiscal year 2018 was exclusively from our acquisition of Revitalised within our Outside the U.S. Segment.
Our business is affected by fluctuations in foreign currencies in the jurisdictions where we operate. Although revenue and related costs are typically earned and incurred in the same currency, a significant change in foreign exchange rates may impact our overall profit margins. We show the impact of currency fluctuations by reporting the difference between our results using current year exchange rates and those results which would have been reported if the average rates utilized in the prior year had prevailed. Currency effects are exclusively within the Outside the U.S. Segment.
Other operating expenses and benefits
Selling, general and administrative expense (SG&A) consists of costs related to general management, marketing and administration. These costs include salaries, benefits, bid and proposal efforts, travel, recruiting, continuing education, employee training, non-chargeable labor costs, facilities costs, printing, reproduction, communications, equipment depreciation, bad debt expense, legal expenses and the costs of business combinations. Our SG&A is primarily composed of labor costs. These costs may be incurred at a segment level, for dedicated resources which are not client-facing, or at a corporate level. Corporate costs are allocated to segments on a consistent, rational basis. Unlike cost of revenue, SG&A is not directly driven by fluctuations in our revenue.
Our SG&A remained steady between 2018 and 2017. Increases in fiscal year 2019 were the result of the acquisition of the citizen engagement centers business, which added additional infrastructure as well as approximately $2.7 million of acquisition-related expenses.
During fiscal years 2018 and 2017, we undertook a restructuring of our United Kingdom operations. We recorded restructuring costs of $3.4 million and $2.2 million, respectively, principally severance expenses.
On May 9, 2016, we sold our K-12 Education business. Following the settlement in certain contingencies in fiscal year 2017, we recorded a gain of $0.7 million.
Interest expense and other income
Our interest expense principally results from our U.S.-based credit facility, which was used to acquire the citizens engagement centers business as well as covering short-term working capital needs throughout the year. Credit facilities are also in place in some of our jurisdictions outside the United States.
We earn interest on some of our cash and investment balances that are in excess of our working capital requirements. In fiscal year 2018, we received insurance recoveries related to property damage and generated interest income on our cash balances through short-term investments. In fiscal year 2017, we received interest income on research and development tax credits which pertained to prior years.
Income taxes
Our effective tax rate for fiscal years 2019, 2018 and 2017, was 24.2%, 26.2% and 32.5%, respectively.
Our income tax expense has received a significant benefit from the Tax Cuts and Jobs Act which reduced the statutory U.S. federal income tax rate from 35% to 21% in January 2018. In addition to the decline in rates, we received a one-time benefit in fiscal year 2018 from the reduction of net deferred tax liabilities. This benefit was offset by a one-time charge for undistributed and previously untaxed earnings in foreign locations, as well as the removal of certain tax credits and exemptions. In fiscal year 2019, we also received benefits from tax credits in the United States. We anticipate that our effective tax rate for fiscal year 2020, will be between 24.5% and 25.5%.
Our income tax expense in fiscal years 2019, 2018 and 2017 received benefits of $4.8 million, $2.8 million and $6.6 million from the vesting of restricted stock units (RSUs) and the exercise of stock options. Our annual benefit or charge related to the vesting of RSUs is dependent upon the timing, amount and share price on the date that the awards become available to owners of RSUs. Although most of our RSUs vest in the fourth quarter, we have a
23


significant population of RSUs whose issuance has been deferred which might result in unpredictable movements in our tax provision. As of September 30, 2019, we have no outstanding stock options.
U.S. Health and Human Services Segment
Our U.S. Health and Human Services Segment provides a variety of business process services such as program administration, appeals and assessments work and related consulting work for U.S. state and local government programs. These services support a variety of programs including the Affordable Care Act (ACA), Medicaid and the Children’s Health Insurance Program (CHIP). We also serve as administrators in state-based welfare-to-work and child support programs.
 Year ended September 30,
(dollars in thousands)201920182017
Revenue$1,176,488  $1,213,911  $1,220,086  
Cost of revenue832,379  854,287  871,180  
Gross profit344,109  359,624  348,906  
Selling, general and administrative expense123,275  140,990  144,014  
Operating income220,834  218,634  204,892  
Gross profit percentage29.2 %29.6 %28.6 %
Operating margin percentage18.8 %18.0 %16.8 %
Our U.S. Health and Human Services revenue and cost of revenue declined in fiscal years 2018 and 2019. All of our revenue and cost movement was organic.

A number of contracts have been rebid or extended in the past two years. When we are subject to a rebid or a sole-source extension of a contract, we may negotiate a revenue reduction in order to retain the business, reducing both our revenue and gross profit margin. Over the life of a contract, we strive to improve performance through scope increases and operating efficiencies. These actions, as well as several new work opportunities, has provided organic growth in the fourth quarter of fiscal year 2019 and we expect it will continue to do so in fiscal year 2020.

As noted above, our acquisition of the citizen engagement centers business provided a benefit to our operating profit margins in this segment through the absorption of a greater share of indirect costs.
Changes in U.S. Health and Human Services segment revenue and gross profit between the fourth quarter of fiscal year 2018 and the fourth quarter of fiscal year 2019 are shown below. Our organic revenue growth was offset by challenges we experienced on a single contract which commenced during fiscal year 2019. During the fourth quarter, our losses included a charge of $3.7 million related to the write-off on long-lived assets associated with this contract.
RevenueCost of RevenueGross Profit
(dollars in thousands)DollarsPercentage change from prior yearDollarsPercentage change from prior yearDollarsPercentage change from prior year
Balance for the three months ended September 30, 2018$288,944  $201,562  $87,382  
Organic growth/(decline)11,462  4.0 %15,690  7.8 %(4,228) (4.8)%
Balance for the three months ended September 30, 2019$300,406  4.0 %$217,252  7.8 %$83,154  (4.8)%


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U.S. Federal Services Segment
Our U.S. Federal Services Segment provides business process solutions, including program administration, appeals and assessments services and system and software development and maintenance services for various U.S. federal civilian programs. The segment also contains some state-based assessments and appeals work that is part of the segment's heritage within the Medicare Appeals portfolio and continues to be managed within this segment.
 Year ended September 30,
(dollars in thousands)201920182017
Revenue$1,111,197  $478,911  $545,573  
Cost of revenue869,127  352,213  406,252  
Gross profit242,070  126,698  139,321  
Selling, general and administrative expense126,128  69,312  74,345  
Operating income115,942  57,386  64,976  
Gross profit percentage21.8 %26.5 %25.5 %
Operating margin percentage10.4 %12.0 %11.9 %

RevenueCost of RevenueGross Profit
Dollars in thousandsPercentage change over previous yearDollars in thousandsPercentage change over previous yearDollars in thousandsPercentage change over previous year
Balance for fiscal year 2017$545,573  $406,252  $139,321  
Organic decline(66,662) (12.2)%(54,039) (13.3)%(12,623) (9.1)%
Balance for fiscal year 2018$478,911  (12.2)%352,213  (13.3)%126,698  (9.1)%
Organic growth/(decline)17,160  3.6 %19,222  5.5 %(2,062) (1.6)%
Acquired growth615,126  128.4 %497,692  141.3 %117,434  92.7 %
Balance for fiscal year 2019$1,111,197  132.0 %$869,127  146.8 %$242,070  91.1 %

This segment received the benefit of acquired growth from the citizen engagement centers business, which provided revenues beginning November 16, 2018. The most significant contracts acquired are cost-plus arrangements and, accordingly, the profit margin is lower than our existing business which includes more profitable fixed fee and transaction-based work.
Included with the acquired business are the operations of the Census Questionnaire Assistance 2020 (CQA) contract. The CQA contract is ramping up slower than we had previously expected but we continue to anticipate $360 million of revenue in fiscal year 2020, with less than $50 million of revenue in fiscal year 2021. Our fiscal year 2019 results included CQA revenue of $185 million. We expect that our CQA work in fiscal year 2020 will be higher in the first part of the year than the latter. Our expectations may change as the contract workload escalates or as changes are made to the contract.
We have experienced organic revenue declines since fiscal year 2017.
A significant subcontract for the Department of Veterans Affairs ended in fiscal year 2017.
Earlier years received the benefit of short-term disaster relief work which has not been repeated.
Contracts came to their anticipated end.
Contracts acquired with Acentia, which were reserved for small businesses, were rebid.
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We experienced organic growth in fiscal year 2019 as a result of new contracts, including an agreement with the Universal Service Administrative Company (USAC) administering the E-rate program. We continue to utilize the project vehicles acquired with Acentia in fiscal year 2015 to enhance and expand our service offerings to the United States Federal Government.
Changes in the U.S. Federal Services Segment revenue and gross profit between the fourth quarter of fiscal year 2018 and the fourth quarter of fiscal year 2019 are shown below.
RevenueCost of RevenueGross Profit
(dollars in thousands)DollarsPercentage changeDollarsPercentage changeDollarsPercentage change
Balance for three months ended September 30, 2018$117,375  $83,685  $33,690  
Organic growth/(decline)20,325  17.3 %21,300  25.5 %(975) (2.9)%
Acquired growth174,479  148.7 %140,608  168.0 %33,871  100.5 %
Balance for three months ended September 30, 2019$312,179  166.0 %$245,593  193.5 %$66,586  97.6 %

Outside the U.S. Segment
Our Outside the U.S. Segment provides BPS solutions for governments and commercial clients outside the United States, including health and disability assessments, program administration for welfare-to-work services and other related services. We support programs and deliver services in the United Kingdom, including HAAS, the Work & Health Programme and Fair Start; Australia, including jobactive and the Disability Employment Service; Canada, including Health Insurance British Columbia and the Employment Program of British Columbia; Saudi Arabia and Singapore.
 Year ended September 30,
(dollars in thousands)201920182017
Revenue$599,130  $699,414  $685,302  
Cost of revenue514,125  591,351  561,624  
Gross profit85,005  108,063  123,678  
Selling, general and administrative expense68,944  72,095  64,742  
Operating income16,061  35,968  58,936  
Gross profit percentage14.2 %15.5 %18.0 %
Operating margin percentage2.7 %5.1 %8.6 %

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Changes in revenue, cost of revenue and gross profit for the 2018 and 2019 fiscal years are summarized below.
 RevenueCost of RevenueGross Profit
Dollars in thousandsPercentage change over previous yearDollars in thousandsPercentage change over previous yearDollars in thousandsPercentage change over previous year
Balance for fiscal year 2017$685,302   $561,624   $123,678   
Organic decline(10,571) (1.5)%10,060  1.8 %(20,631) (16.7)%
Acquired growth1,096  0.2 %799  0.1 %297  0.2 %
Currency effect compared to the prior period23,587  3.4 %18,868  3.4 %4,719  3.8 %
Balance for fiscal year 2018$699,414  2.1 %$591,351  5.3 %$108,063  (12.6)%
Organic decline(65,373) (9.3)%(47,096) (8.0)%(18,277) (16.9)%
Acquired growth530  0.1 %318  0.1 %212  0.2 %
Currency effect compared to the prior period(35,441) (5.1)%(30,448) (5.1)%(4,993) (4.6)%
Balance for fiscal year 2019$599,130  (14.3)%$514,125  (13.1)%$85,005  (21.3)%

Our Outside the U.S. Segment reported declining organic revenues and reduced profit margins across fiscal years 2018 and 2019. These declines are primarily driven by market conditions and the turnover of our contracts.
We are challenged across the segment by low unemployment rates in the geographies in which we operate. As a consequence, we are required to adapt our methodology to serve the needs of our clients' populations. This results in smaller and harder-to-serve populations.
Our most significant contracts have reached their expected end, reducing revenues by approximately $36 million. The replacement contracts have a different focus and place a greater emphasis on sustained employment outcomes. The United Kingdom government is placing a greater focus on programs designed to provide a more holistic approach to support the disabled and long-term sick populations into sustained employment. These changes are detrimental to our profit margin as the caseload from contracts ending steadily declines. Although contracts are continuing to report operating losses, we anticipate that they will move to profitability in fiscal year 2020.
The jobactive contract in Australia includes discretionary spending reimbursed to us with no margin. We have received approximately $16 million less in these revenues and costs in fiscal year 2019 compared to fiscal year 2018.
In the second half of fiscal year 2019, a component of a Canadian contract was discontinued as our client considers a new approach. This work was highly accretive.
At the beginning of fiscal year 2019, we changed the manner in which we recognize revenue on many of our contracts, with the majority of the changes occurring within the Outside the U.S. Segment. In fiscal year 2019, we recognized $4.0 million under this methodology which would not have been recorded using the previous methodology.
Our acquired growth in fiscal year 2019 reflects the acquisition of GT Holding Solutions. Our acquired growth in fiscal year 2018 represents ten months of operations of Revitalised, a United Kingdom business acquired in fiscal year 2017.
The continued strength of the United States Dollar against the currencies outside the U.S. resulted in declines in annual revenue and costs on a U.S. Dollar basis in fiscal year 2019 compared to fiscal year 2018.
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Approximately half of our revenue within the Outside the U.S. Segment is generated through contracts within the United Kingdom, most of which are with government agencies. As such, we are closely monitoring developments as the United Kingdom Government negotiates a withdrawal from the European Union. We do not anticipate the withdrawal to have a material direct effect on our business in the United Kingdom due to the nature of our customer base and the absence of cross-border operations. However, regardless of the nature and timing of the withdrawal, the uncertainty over the process and the eventual outcome is affecting us indirectly. We anticipate we will be subject to political risks, as legislative priorities may change, the economic risks from the pre- and post-withdrawal environment, and we may, along with other businesses, experience difficulty in recruiting and retaining employees.
Changes in the Outside the U.S. segment revenue and gross profit between the fourth quarter of fiscal year 2018 and the fourth quarter of fiscal year 2019 are shown below. Much of our organic decline in revenue and costs was from Australian pass-through services noted above. Our profit margin received the benefit of improved services on our HAAS contract and our new Australia contracts, which started in the fourth quarter of fiscal year 2018.
RevenueCost of RevenueGross Profit
Dollars in thousandsPercentage change over previous yearDollars in thousandsPercentage change over previous yearDollars in thousandsPercentage change over previous year
Balance for three months ended September 30, 2018$152,127  $134,261  $17,866  
Organic growth/(decline)(3,004) (2.0)%(4,458) (3.3)%1,454  8.1 %
Acquired growth530  0.3 %318  0.2 %212  1.2 %
Currency effect compared to the prior period(7,272) (4.8)%(6,250) (4.7)%(1,022) (5.7)%
Balance for three months ended September 30, 2019$142,381  (6.4)%$123,871  (7.7)%$18,510  3.6 %

Changes in lease accounting
On October 1, 2019, we adopted a new methodology for accounting for our leases. Although we do not expect any changes to our consolidated statements of operations, we will prospectively show all of our leases, except for some short-term arrangements, on our balance sheet as an asset, representing our right to use the leased property, and a liability, representing our future obligations under the lease agreement. Although this new methodology will increase our balance sheet liabilities, we do not anticipate any significant effect on our debt covenants or any other similar arrangements.
Liquidity and capital resources
Our principal source of liquidity is our cash flows from operations. These cash flows are used to fund our ongoing operations and working capital needs as well as investments in capital infrastructure purchases of our own common stock and business combinations. These operating cash flows are driven by our contracts and their payment terms. For many contracts, we are reimbursed for the costs of startup operations, although there may be a gap between incurring and receiving these funds. Other factors which may cause shortfalls in cash flows include contract terms where payments are tied to outcome deliveries, which may not correspond with the costs incurred to achieve these outcomes and short-term delays where government budgets are constrained.
To supplement our operating cash flows, we maintain and utilize our credit facility, which allows us to borrow up to $400 million, subject to standard covenants. In November 2018, we utilized $150 million of borrowing to acquire the citizen engagement centers business, with the balance coming from existing cash balances. We have since repaid this balance in full. Our foreign locations have access to borrowing facilities which they may use to cover short-term working capital needs or small acquisitions, such as our acquisition of GT Hiring Solutions in August 2019.
We believe our cash flows from operations to be sufficient to meet our day-to-day requirements.
Our priority for cash utilization is to actively pursue new growth opportunities. We also maintain our quarterly dividend program and, where opportunities arise, make purchases of our own shares.
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We have no requirement to remit funds from our foreign locations back to the United States. With the passage in the United States of the Tax Cuts and Jobs Act, we have been able to transfer a significant amount of funds from our foreign locations on a tax-free basis. We will continue to explore opportunities to bring back additional funds, taking into consideration the working capital requirements and relevant tax rules in each jurisdiction. When we are unable to remit funds back without incurring a penalty, we will consider these funds indefinitely reinvested until such time as these restrictions are changed. As a result, we do not record U.S. deferred income taxes on any funds held in foreign jurisdictions. We have not attempted to calculate our potential liability from any transfer of these funds as any such transaction might include tax planning strategies which 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. At September 30, 2019, we held $18.9 million of cash or cash equivalents in foreign locations in foreign currencies.
The following table provides a summary of our cash flow information for the three years ended September 30, 2019. Our presentation of cash flows has changed in fiscal year 2019 following adoption of new accounting standards. See "Note 1. Business and summary of significant accounting policies" in Item 8 of this Annual Report on Form 10-K.
 Year ended September 30,
(dollars in thousands)201920182017
Net cash provided by/(used in):   
Operations$356,727  $316,774  $336,424  
Investing activities(483,883) (45,237) (25,221) 
Financing activities(110,859) (91,880) (215,429) 
Effect of exchange rates on cash and cash equivalents(2,052) (2,825) 3,660  
Net (decrease)/increase in cash, cash equivalents and restricted cash$(240,067) $176,832  $99,434  
The factors influencing cash flows from operations are:
The acquisition of the citizen engagement centers business,
Our cash collections,
Our cash payments, and
The timing of tax payments.
The acquisition of the citizen engagement centers business in November 2018 increased both the cash we collect from our customers and the payments we make to both employees and vendors. At the time of the acquisition, the working capital was higher than is typical due to the timing of billings and payroll and the seasonality of the business. While this increased the investment required, this was offset by the collection of this excess capital during the fiscal year.
We measure our ability to collect receivables from customers using our Days Sales Outstanding (DSO) calculation. We have a target range for DSO of 65 to 80 days and we have typically stayed within the lower end of this range during the past three fiscal years. During both fiscal years 2018 and 2017, we experienced strong cash collections, particularly towards the end of the year, and reported a DSO of 63 days at September 30, 2018 and 2017. This resulted in significant cash flows from customers in both years, particularly in 2017. Our DSO balance at September 30, 2019 was 72 days. Approximately four days of this increase resulted from our adoption of a new revenue recognition standard in fiscal year 2019, which increased our unbilled receivables balance. In addition, the ongoing ramp up in the Census contract will result in a significant increase in receivables throughout most of fiscal year 2020.
During the second half of fiscal year 2019, we implemented a new accounts payable system in the United States. As a result, our payable balance at year end was higher than is typical by approximately $25 million to $30 million. This had a beneficial effect on our operating cash flows in fiscal year 2019, which we anticipate will be reversed in fiscal year 2020.
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Our tax payments for September 30, 2019, 2018 and 2017 were $69.2 million, $65.3 million and $87.8 million, respectively. Tax payments are lower in fiscal year 2019 and 2018 due to the Tax Cuts and Jobs Act in the United States.
Our principal investing activity in fiscal year 2019 was the acquisition of the citizen engagement centers business, which required a cash outflow of $430.7 million, as well as a further investment in software licenses of $4.5 million to cover software license additions for newly-acquired employees. We also acquired GT Hiring Solutions and bought out our business partners in the United Kingdom and Saudi Arabia.
Our cash flows from financing activities were our use of our credit facility, our purchases of our common stock and our quarterly dividend.
During fiscal year 2017, we repaid borrowings on our credit facility from two acquisitions, principally utilizing cash flows from our operations in the United States. Some debt balances exist at September 30, 2019, including some held by our foreign businesses to cover short-term working capital obligations, a balance to fund the acquisition of GT Hiring in August 2019 and other small balances. Our use of the credit facilities in fiscal year 2020 will be dependent upon our need to fund acquisitions.
We purchased 0.7 million, 1.1 million and 0.6 million shares of our common stock during fiscal years 2019, 2018 and 2017, utilizing cash of $143.2 million. At September 30, 2019, we had $146.0 million available for future purchases under a plan approved by our Board of Directors. Our share purchases are at the discretion of our Board of Directors and depend upon our future operations and earnings, capital requirements general financial condition, contractual restrictions and other factors our Board of Directors may deem relevant.
In fiscal year 2019, we paid a dividend of $0.25 per common share per quarter. This resulted in a cash outflow of $63.9 million. In fiscal year 2020, we commenced paying a quarterly dividend of $0.28 per share. In fiscal years 2018 and 2017, our quarterly dividend payment of $0.045 per common share resulted in a cash outflow of approximately $12 million per year.
Where possible, we identify surplus funds in foreign locations and place them into entities with the U.S. Dollar as their functional currency, reducing our exposure to foreign currencies. We mitigate our foreign currency exchange risks within our operating divisions through incurring costs and cash outflows in the same currency as our revenue.
To supplement our statements of cash flows presented on a GAAP basis, we use the measure of free cash flow to analyze the funds generated from operations.
 Year ended September 30,
(dollars in thousands)201920182017
Cash provided by operations$356,727  $316,774  $336,424  
Purchases of property and equipment and capitalized software costs(66,846) (26,520) (24,154) 
Capital expenditure as a result of the acquisition4,542  —  —  
Free cash flow$294,423  $290,254  $312,270  

Obligations and commitments
The following table summarizes our contractual obligations at September 30, 2019, that require the Company to make future cash payments:
 Payments due by period
(dollars in thousands)TotalLess than
1 year
1 - 3
years
3 - 5
years
More than
5 years
Operating leases$237,657  $101,724  $94,659  $33,979  $7,295  
Debt(1)9,889  9,658  231  —  —  
Deferred compensation plan liabilities(2)37,019  2,940  3,519  1,570  28,990  
Total$284,565  $114,322  $98,409  $35,549  $36,285  
____________________________________________

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(1)The debt balance of $9.9 million at September 30, 2019, is made up of short-term borrowings and an interest-free loan. Accordingly, no interest has been estimated.
(2)Deferred compensation plan liabilities are typically payable at times elected by the employee at the time of deferral. The timing of these payments are based upon elections in place at September 30, 2019, but these may be subject to change. Payments falling due may be deferred again by the employee, delaying the obligation. Payments may also be accelerated if an employee ceases employment with us or applies for a hardship payment. At September 30, 2019, we held assets of $34.5 million in a Rabbi Trust which could be used to meet these obligations.

Off-balance sheet arrangements
Other than our operating lease commitments, we do not have material off-balance sheet risk or exposure to liabilities that are not recorded or disclosed in our financial statements. We have significant operating lease commitments for office space; those commitments are generally tied to the period of performance under related contracts. Although for certain contracts we are bound by performance bond commitments and standby letters of credit, we have not had any defaults resulting in draws on performance bonds. We do not speculate in derivative transactions. In the past, we have utilized interest rate derivatives to add stability to interest expense and to manage our exposure to interest rate movements.
Effects of inflation
As measured by revenue, approximately 38% of our business in fiscal year 2019 was conducted under cost-plus pricing arrangements that adjust revenue to cover costs increased by inflation. Approximately 6% of the business was time-and-material pricing arrangements where labor rates are often fixed for several years. We generally have been able to price these contracts in a manner that accommodates the rates of inflation experienced in recent years. Our remaining contracts are fixed-price and performance-based and are typically priced to mitigate the risk of our business being adversely affected by inflation.
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 consider the accounting policies below to be the most important to our financial position and results of operations either because of the significance of the financial statement item or because of the need to use significant judgment in recording the balance. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates. Our significant accounting policies are summarized in "Note 1. Business and summary of 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 over time following billing, some of our revenue requires us to make estimates. These estimates are typically reviewed quarterly with any changes being recorded as a cumulative catch-up in revenue. Our most significant estimates are listed below.
Some of our performance-based contract revenue is recognized based upon future outcomes defined in each contract. This is the case in many of our welfare-to-work contracts in the Outside the U.S. Segment, where we are paid as individuals attain employment goals, which may take many months to achieve. We recognize revenue on these contracts over the period of performance. Our estimates vary from contract to contract but may include estimates of the number of participants, the length of the contract or the participants reaching employment milestones. We are required to estimate these outcome fees ahead of their realization and recognize this estimated fee over the period of delivery. These estimates are updated on a quarterly basis, with changes in estimate being taken to our income statement. During the year ended September 30, 2019, we recognized revenue from these performance-based fees of $91.3 million. Our accounts receivable - unbilled balance at September 30, 2019 included $47.0 million of these estimated outcome fees.
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Other performance-based contracts with future outcomes include those where we recognize an average effective rate per participant based upon the total volume of expected participants. In this instance, we are required to estimate the amount of discount applied to determine the average rate of revenue per participant. This balance is estimated each quarter and changes to revenue recorded through a cumulative catch-up. During fiscal year 2019, we have recognized $144.0 million on contracts using an average effective rate.
Business combinations and goodwill. Our balance sheet at September 30, 2019 includes $584.5 million of goodwill and $179.3 million of net intangible assets. These assets are created through business acquisitions and their creation and maintenance requires certain critical estimates.
During an acquisition, we are required to estimate the fair value of all acquired tangible and intangible assets, as well as liabilities assumed, in order to allocate the purchase price. For many assets acquired and liabilities assumed, the calculation of fair value requires little judgment as balances may be readily convertible to cash receipts or cash payments or there may be an active market against which to measure value. For the valuation of intangible assets, significant judgment may be necessary in identifying and valuing such assets. This valuation will also involve identifying the useful economic life of this asset. Our estimates of these fair values and useful economic lives are based upon assumptions we believe to be reasonable and, where appropriate, include assistance from third-party appraisal firms. During fiscal year 2019, we completed the acquisition of the citizens engagement centers business. Our accounting for this acquisition included determining the fair value of the customer relationships intangible assets acquired. In making our determination of the fair value of these assets, we estimated discount rates, projected revenue growth margins and profit margins, These assumptions relate to the future performance of the acquired business, are forward-looking and could be affected by future economic and market conditions.
The excess purchase price over the identified net assets is considered to be goodwill. Goodwill is recorded at the reporting unit level. 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. Where we have acquisitions which 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. Impairment testing is performed at the reporting unit level. This process requires judgment in assessing the fair value of these reporting units. At July 1, 2019, the Company performed its annual impairment test and determined that there had been no impairment of goodwill. In performing this assessment, the Company utilizes an income approach. Such an approach requires estimation of future operating cash flows including business growth, utilization of working capital and discount rates. The valuation of the business as a whole is compared to the Company's market capital at the date of the acquisition in order to verify the calculation. In all cases, we determined that the fair value of our reporting units was significantly in excess of our carrying value to the extent that a 25% decline in fair value in any reporting unit would not have resulted in an impairment charge.
Contingencies. From time to time, we are involved in legal proceedings, including contract and employment claims, in the ordinary course of business. We assess the likelihood of any adverse judgments or outcomes to these contingencies, as well as potential ranges of probable losses and establish reserves accordingly. The amount of reserves required may change in future periods due to new developments in each matter or changes in approach to a matter such as a change in settlement strategy. We are also subject to audits by our government clients on many of our contracts based upon measures such as costs incurred or transactions processed. 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 which are updated as audits are completed.
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Non-GAAP and other measures
We utilize non-GAAP measures where we believe it will assist the user of our financial statements in understanding our business. The presentation of these measures is meant to complement, but not replace, other financial measures in this document. The presentation of non-GAAP numbers is not meant to be considered in isolation, nor as an alternative to revenue growth, cash flows from operations or net income as measures of performance. These non-GAAP measures, as determined and presented by us, may not be comparable to related or similarly titled measures presented by other companies.
In recent years, we have made a number of acquisitions. We believe users of our financial statements wish to evaluate the performance of our underlying business, excluding changes that have arisen due to businesses acquired. We provide organic revenue growth as a useful basis for assessing this. To calculate organic revenue growth, we compare current year revenue excluding revenue from these acquisitions to our prior year revenue.
In fiscal year 2019, 21% of our revenue was generated outside the U.S. We believe that users of our financial statements wish to understand the performance of our foreign operations using a methodology which excludes the effect of year-over-year exchange rate fluctuations. To calculate year-over-year currency movement, we determine the current year’s results for all foreign businesses using the exchange rates in the prior year. We refer to this adjusted revenue on a "constant currency basis."
In order to sustain our cash flows from operations, we require regular refreshing of our fixed assets and technology. We believe that users of our financial statements wish to understand the cash flows that directly correspond with our operations and the investments we must make in those operations using a methodology which combines operating cash flows and cash flows required for the replacement of property, equipment and software. We provide free cash flow to complement our statement of cash flows. Free cash flow shows the effects of the Company’s operations and routine capital expenditures and excludes the cash flow effects of acquisitions, purchases of our own shares, dividend payments and other financing transactions. We have provided a reconciliation of free cash flow to cash provided by operations.
To sustain our operations, our principal source of financing comes from receiving payments from our customers. We believe that users of our financial statements wish to evaluate our efficiency in converting revenue into cash receipts. Accordingly, we provide DSO, which we calculate by dividing billed and unbilled receivable balances at the end of each quarter by revenue per day for the period. Revenue per day for a quarter is determined by dividing total revenue by 91 days.
We have a $400 million credit facility. Our credit agreement includes the defined term Consolidated EBITDA and our calculation of Adjusted EBITDA conforms to the credit agreement definition. We believe our investors appreciate the opportunity to understand the possible restrictions which arise from our credit agreement.
Adjusted EBITDA is also a useful measure of performance which focuses on the cash generating capacity of the business as it excludes the non-cash expenses of depreciation and amortization, and makes for easier comparisons between the operating performance of companies with different capital structures by excluding interest expense and therefore the impacts of financing costs.
The measure of Adjusted EBITA is a step in calculating Adjusted EBITDA and facilitates comparisons to similar businesses as it isolates the amortization effect of business combinations.
Our credit facility requires us to calculate Adjusted EBITDA on a pro forma basis as though we had owned any significant acquired business for a full twelve month period prior to the acquisition.
We have provided a reconciliation from net income to Adjusted EBITA, Adjusted EBITDA and Pro Forma Adjusted EBITDA below.
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 Year ended September 30,
(in thousands)201920182017
Net income attributable to MAXIMUS$240,824  $220,751  $209,426  
Interest expense(2,591) 379  3,466  
Provision for income taxes76,825  78,393  102,053  
Amortization of intangible assets33,054  10,308  12,208  
Stock compensation expense20,774  20,238  21,365  
Acquisition-related expenses2,691  947  83  
Gain on sale of a business—  —  (650) 
Adjusted EBITA371,577  331,016  347,951  
Depreciation and amortization of property, plant, equipment and capitalized software52,404  51,884