MAXIMUS, INC. The following discussion is intended to help the reader understand our business, financial condition, results of operations, liquidity and capital resources. You should read this discussion in conjunction with "Risk Factors," "Forward-Looking Statements," and our financial statements and related notes included in our Annual Report on Form 10-K for fiscal year 2021 filed with theSecurities and Exchange Commission onNovember 18, 2021 (the "2021 Form 10-K") and elsewhere in this Quarterly Report on Form 10-Q, as applicable.
Business Overview
We are a leading operator of government health and human services programs
worldwide. We are a responsible and reliable partner to governments under our
mission of Helping Government Serve the People®. Governments rely on our
financial stability and proven expertise in helping people connect to and use
critical government programs. We use our experience, business process management
expertise, innovation, and technology solutions to help government agencies run
effective, efficient, and accountable programs.
Our primary portfolio of work is tied to business process services ("BPS") in
the health services and human services markets. Our growth over the last decade
was driven by new work, such as that from the Affordable Care Act ("ACA") in the
U.S. , an evolving digital transformation to meet the modernization needs of our
clients, and growing demand for independent and conflict-free clinical services
including assessments, appeals, and independent medical reviews in multiple
geographies. Our growth has been supplemented by strategic acquisitions.
We experienced both favorable and unfavorable impacts as a result of the
Coronavirus ("COVID-19") global pandemic. While some of the programs we support
have experienced reduced volumes due to the pandemic, we have also been
successful in winning new contracts to meet the immediate needs of our
customers, including contract tracing and disease investigation, vaccine
information lines, and unemployment insurance administration. Demonstrating the
value of our business model, we have converted a number of these relationships
into longer-term contract opportunities. The individuals and families served
under these programs are those considered some of the most vulnerable to
COVID-19. As a result, we believe our operations support programs that are vital
for their safety and wellbeing.
We continue to execute upon our three-fold strategy to accelerate our progress and drive the next phase of our growth through:
•Digital transformation. We are using digital technologies to transform the experience of our customers and our employees. We believe that these technologies can help our government clients run their programs in a more streamlined manner and make it easier for individuals to interact with these programs. •Clinical evolution. We are expanding our clinical-related services and are experienced at delivering clinical BPS at scale. We have established an extensive set of services that frequently requires a network of healthcare professionals who can complete clinical assessments, provide occupational health and independent medical review services, and adjudicate complicated benefits appeals. With the formation ofMaximus Public Health ("MPH"), we serve as a resource to governments as they respond to public health threats. These efforts include providing health information and COVID-19 testing access, test results, and vaccination information through our citizen engagement centers in key states and counties across theU.S. •Market expansion. We continue with our existing strategy to expand our markets by bringing our core capabilities to new programs and clients, adding new capabilities to access adjacent markets, and through geographic expansion. In fiscal year 2021, we expanded our clinical assessments and public health work, and completed two acquisitions in theU.S. to increase our digital and clinical capabilities, as well as create stronger relationships in keyU.S. federal government agencies. The macro-trends for our business remain unchanged. As the pandemic has underscored, governments around the world need better solutions to deliver on policy priorities that can change rapidly. Social welfare programs that reflect long-term societal commitments and priorities increasingly face rising demand, shifting demographics, and unsustainable program costs. We believe that Maximus is well positioned to address these challenges and be a transformative partner through our scalable, cost-effective, and operationally efficient services for a wide range of government programs. 22
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Financial Overview
A number of factors have affected our results for the second quarter of fiscal year 2022, the most significant of which we have listed below. More detail on these changes is presented below within our "Results of Operations" section. •During fiscal year 2021, we acquiredVES Group, Inc. ("VES"), theFederal Division of Attain , LLC ("Attain") andConnect Assist Holdings Limited ("Connect Assist"). At the start of fiscal year 2022, we acquired the student loan servicing business from Navient, rebranded as Aidvantage. From the date of each acquisition, we have received the benefit of additional revenue, as well as additional operating costs. In completing these acquisitions, we have allocated a portion of each purchase price to identifiable intangible assets, which we are amortizing over the estimated useful lives of each asset. •To fund the acquisition of VES, we entered into a new credit facility comprised of fixed term debt and a new revolving credit facility. The cost of servicing this debt, as well as the cost of the debt facilities, has resulted in an increase in our interest expense. •Our services in fiscal years 2022 and 2021 were affected by the COVID-19 pandemic. We received the benefit from new, short-term work, assisting governments with their responses to the pandemic, which was often highly profitable. This mitigated the effect of declines in established programs where our transaction volume has been reduced. At this time, much of the short-term work has concluded, but our established programs are still at reduced capacity.
Results of Operations
Table MD&A 1: Consolidated Results of Operations
For the Three Months Ended For the Six Months Ended
March 31, 2022 March 31, 2021 March 31, 2022 March 31, 2021
(dollars in thousands, except per share data)
Revenue $ 1,177,326 $ 959,280 $ 2,328,202 $ 1,904,834
Cost of revenue 948,875 728,622 1,871,596 1,468,121
Gross profit 228,451 230,658 456,606 436,713
Gross profit percentage 19.4 % 24.0 % 19.6 % 22.9 %
Selling, general, and
administrative expenses 130,307 112,402 254,528 224,369
Selling, general, and
administrative expenses as a
percentage of revenue 11.1 % 11.7 % 10.9 % 11.8 %
Amortization of intangible assets 22,856 5,070 45,261 11,586
Operating income 75,288 113,186 156,817 200,758
Operating income margin 6.4 % 11.8 % 6.7 % 10.5 %
Interest expense (9,438) (756) (19,076) (962)
Other expense, net 715 (520) 404 (1,295)
Income before income taxes 66,565 111,910 138,145 198,501
Provision for income taxes 16,469 31,296 34,719 53,810
Effective tax rate 24.7 % 28.0 % 25.1 % 27.1 %
Net income $ 50,096 $ 80,614 $ 103,426 $ 144,691
Earnings per share:
Basic $ 0.81 $ 1.30 $ 1.66 $ 2.33
Diluted $ 0.80 $ 1.29 $ 1.66 $ 2.33
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Our business segments have different factors driving revenue fluctuations and profitability. The sections that follow cover these segments in greater detail. Our revenue reflects fees earned for services provided. Cost of revenue consists of direct costs related to labor and related overhead, subcontractor labor, outside vendors, rent, and other direct costs. The largest component of cost of revenue, approximately two-thirds, is labor, including subcontracted labor.
Table MD&A 2: Changes in Revenue, Cost of Revenue, and Gross Profit for the Three Months Ended
Revenue Cost of Revenue Gross Profit
Dollars % Change Dollars % Change Dollars % Change
(dollars in thousands)
Three Months Ended March 31,
2021 $ 959,280 $ 728,622 $ 230,658
Organic effect 4,084 0.4 % 58,853 8.1 % (54,769) (23.7) %
Acquired growth 220,405 23.0 % 166,139 22.8 % 54,266 23.5 %
Currency effect compared to
the prior period (6,443) (0.7) % (4,739) (0.7) % (1,704) (0.7) %
Three Months Ended March 31,
2022 $ 1,177,326 22.7 % $ 948,875 30.2 % $ 228,451 (1.0) %
Table MD&A 3: Changes in Revenue, Cost of Revenue, and Gross Profit for the Six Months Ended
Revenue Cost of Revenue Gross Profit
Dollars % Change Dollars % Change Dollars % Change
(dollars in thousands)
Six Months Ended March 31,
2021 $ 1,904,834 $ 1,468,121 $ 436,713
Organic effect (28,680) (1.5) % 69,706 4.7 % (98,386) (22.5) %
Acquired growth 456,171 23.9 % 336,317 22.9 % 119,854 27.4 %
Currency effect compared to
the prior period (4,123) (0.2) % (2,548) (0.2) % (1,575) (0.4) %
Six Months Ended March 31,
2022 $ 2,328,202 22.2 % $ 1,871,596 27.5 % $ 456,606 4.6 %
Selling, general, and administrative expenses ("SG&A") consists of indirect
costs related to general management, marketing, and administration. It is
primarily composed of labor costs. These costs may be incurred at a segment
level, for dedicated resources that are not client-facing, or at a corporate
level. Corporate costs are allocated to segments on a consistent and rational
basis. Fluctuations in our SG&A are primarily driven by changes in our
administrative cost base, which is not directly driven by changes in our
revenue. As part of our work for the U.S. federal government and many states, we
allocate these costs using a methodology driven by the U.S. Federal Cost
Accounting Standards.
Our SG&A expense has increased year-over-year due primarily to the additional
cost base from our acquisitions. Our amortization of intangible assets increased
by $17.8 million and $33.7 million for the three and six months ended March 31,
2022 , compared to same periods ended March 31, 2021 . The increase is a result of
acquisitions during fiscal years 2021 and 2022. This increase is partially
offset by the intangible asset amortization related to the Census Questionnaire
Assistance (CQA) contract, which was fully amortized through November 2020 .
Table MD&A 4: Changes in Amortization of Intangible Assets Expense for Three and Six Months Ended March
31, 2022
For the Three Months Ended For the Six Months
March 31, 2022 Ended March 31, 2022
Dollars Dollars
(dollars in thousands)
Period Ending March 31, 2021 $ 5,070 $ 11,586
VES acquisition 13,833 27,667
Attain acquisition 1,750 4,375
Aidvantage acquisition 2,060 3,716
Connect Assist acquisition 151 313
CQA contract - (2,313)
Other (8) (83)
Period Ending March 31, 2022 $ 22,856 $ 45,261
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Table MD&A 5: Non-GAAP Adjusted Results Excluding Amortization of Intangible Assets
For the Three Months Ended For the Six Months Ended
March 31, 2022 March 31, 2021 March 31, 2022 March 31, 2021
(dollars in thousands, except per share data)
Operating income $ 75,288 $ 113,186 $ 156,817 $ 200,758
Add back: Amortization of
intangible assets 22,856 5,070 45,261 11,586
Adjusted operating income
excluding amortization of
intangible assets (Non-GAAP) $ 98,144 $ 118,256 $ 202,078 $ 212,344
Adjusted operating income margin
excluding amortization of
intangible assets (Non-GAAP) 8.3 % 12.3 % 8.7 % 11.1 %
Net income $ 50,096 $ 80,614 $ 103,426 $ 144,691
Add back: Amortization of
intangible assets, net of tax 16,884 3,756 33,414 8,578
Adjusted net income excluding
amortization of intangible assets
(Non-GAAP) $ 66,980 $ 84,370 $ 136,840 $ 153,269
Diluted earnings per share $ 0.80 $ 1.29 $ 1.66 $ 2.33
Add back: Effect of amortization
of intangible assets on diluted
earnings per share 0.27 0.06 0.53 0.13
Adjusted diluted earnings per
share excluding amortization of
intangible assets (Non-GAAP) $ 1.07 $ 1.35 $ 2.19 $ 2.46
Our intangible asset amortization is based upon our assumptions of the value and
economic life, typically established at the acquisition date. If these
assumptions change, the pattern of future expense may be accelerated. At this
time, we have a significant asset related to the Customer Center Operations
(CCO) contract which is subject to a rebid anticipated towards the end of this
fiscal year. If this rebid is unsuccessful, the asset life of this asset may
need to be reduced.
Interest expense for the three months ended March 31, 2022 , increased by
$8.7 million to $9.4 million , while interest expense for the six months ended
March 31, 2022 , increased by $18.1 million to $19.1 million . This increase is
driven by the costs of our cash borrowings utilized to acquire VES. Interest
expense is expected to be in the range of $40 million to $42 million for fiscal
year 2022 as the debt is expected to be outstanding for the entire fiscal year.
Our interest rate will vary based upon both prevailing interest rates and our
leverage ratio.
Our effective income tax rate for the three and six months ended March 31, 2022 ,
was 24.7% and 25.1%, respectively, compared to 28.0% and 27.1% for the three and
six months ended March 31, 2021 . For fiscal year 2022, we expect the effective
tax rate to be between 24.5% and 25.5%.
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OurU.S. Services Segment provides a variety of business process services ("BPS") such as program administration, appeals and assessments, and related consulting work forU.S. state and local government programs. These services support a variety of programs, including the Affordable Care Act ("ACA"), Medicaid, theChildren's Health Insurance Program ("CHIP"), Temporary Assistance to Needy Families ("TANF"), and child support programs. Addressing societal macro trends such as aging populations and rising costs, the segment continues to execute on its clinical evolution strategy by expanding its clinical offerings. This includes assessments to determine whether personal care services are medically necessary and public health offerings such as contact tracing, disease investigation, and vaccine distribution support services as part of the governments' COVID-19 response efforts.
Table MD&A 6:
For the Three Months Ended For the Six Months Ended
March 31, 2022 March 31, 2021 March 31, 2022 March 31, 2021
(dollars in thousands)
Revenue $ 398,077 $ 448,215 $ 784,494 $ 833,149
Cost of revenue 313,106 328,775 609,824 614,707
Gross profit 84,971 119,440 174,670 218,442
Selling, general, and administrative
expenses 38,273 36,593 73,375 74,049
Operating income 46,698 82,847 101,295 144,393
Gross profit percentage 21.3 % 26.6 % 22.3 % 26.2 %
Operating margin percentage 11.7 % 18.5 % 12.9 % 17.3 %
Our revenue and cost of revenue for the three months ended
In fiscal year 2021, we received a large volume of short term COVID-19 related work, typically at higher margins. This work has contracted or moved into longer-term work, resulting in a reduced workload at lower margins. We estimate that our COVID related revenue has declined by approximately$120 million and$150 million for the three and six months endedMarch 31, 2022 , respectively, compared to fiscal year 2021. Our core established programs have been operating at depressed levels during the COVID-19 pandemic as the volume of transaction-based work has declined. In particular, we continue to report lower volumes of transactions on redetermination activities as states have paused Medicaid redeterminations. The Federal public health emergency declaration has been extended through mid-July which will further delay the commencement of redeterminations. Accordingly, we do not expect recoveries in these contracts until late in this fiscal year. For the full year, we anticipate an operating margin between 9% and 11%, with the timing of the end of the public health emergency being a significant factor in the return to higher margins.U.S. Federal Services Segment From technology solutions to program administration and operations, ourU.S. Federal Services Segment delivers end-to-end solutions that help variousU.S. federal government agencies better deliver on their mission. This also includes appeals and assessments services, system and application development, IT modernization, and maintenance services. The segment also contains certain state-based assessments and appeals work that is part of the segment's heritage within the Medicare Appeals portfolio which continues to be managed within this segment. Benefiting from theMaximus Federal Consulting (formerly Attain Federal) platform, the segment executes on its digital strategy to deliver technology solutions that advance agency missions, including the challenge to modernize, provide better customer experience, and drive process efficiencies. The segment continues to expand its clinical solutions with the acquisition of VES which manages the clinical evaluation process forU.S. veterans and service members on behalf of theU.S. Department of Veterans Affairs . The segment further supports clinical offerings in public health with new work supporting theU.S. Federal Government's COVID-19 response efforts. This included expanded work with theCenters for Disease Control and Prevention ("CDC") for their helpline and increased support for the IRS Wage and Investment Division's response efforts to general inquiries regarding the Coronavirus Aid Relief & Economic Security ("CARES") Act and Economic Impact Payment Service Plan. 26
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Table MD&A 7:
For the Three Months Ended For the Six Months Ended
March 31, 2022 March 31, 2021 March 31, 2022 March 31, 2021
(dollars in thousands)
Revenue $ 573,288 $ 330,136 $ 1,155,159 $ 735,381
Cost of revenue 458,135 256,003 913,430 578,752
Gross profit 115,153 74,133 241,729 156,629
Selling, general, and administrative
expenses 68,949 50,978 133,874 103,230
Operating income 46,204 23,155 107,855 53,399
Gross profit percentage 20.1 % 22.5 % 20.9 % 21.3 %
Operating margin percentage 8.1 % 7.0 % 9.3 % 7.3 %
Table MD&A 8:
Revenue Cost of Revenue Gross Profit
Amount % Change Amount % Change Amount % Change
(dollars in thousands)
Three Months Ended March 31,
2021 $ 330,136 $ 256,003 $ 74,133
Organic effect 29,055 8.8 % 39,740 15.5 % (10,685) (14.4) %
Acquired growth 214,097 64.9 % 162,392 63.4 % 51,705 69.7 %
Three Months Ended March 31,
2022 $ 573,288 73.7 % $ 458,135 79.0 % $ 115,153 55.3 %
Table MD&A 9:
Revenue Cost of Revenue Gross Profit
Amount % Change Amount % Change Amount % Change
(dollars in thousands)
Six Months Ended March 31,
2021 $ 735,381 $ 578,752 $ 156,629
Organic effect (24,284) (3.3) % 5,685 1.0 % (29,969) (19.1) %
Acquired growth 444,062 60.4 % 328,993 56.8 % 115,069 73.5 %
Six Months Ended March 31,
2022 $ 1,155,159 57.1 % $ 913,430 57.8 % $ 241,729 54.3 %
We received significant acquired growth from:
•VES, which we acquired in
•Attain, which we acquired in
•The Aidvantage business, which we acquired in
Our profit margins on VES and Attain are higher than our organic work, resulting in improvements to our profit margins. These were partially tempered by our Aidvantage contract, which has recorded a loss in the three months endedMarch 31, 2022 . The deferral of student loan repayments by the government has reduced our revenue and we have incurred costs related to the transition of the program. Our organic work also tempered our gross profit margins. This was driven by a large contract on which we agreed to accept a lower margin in return for increased funding and anticipated future revenue. Our operating profit margins received a benefit from the increased scale of the segment. We anticipate operating margins between 10% and 11% for the full year. At this time, we assume that student loan repayments will commence inSeptember 2022 , but any further delays will temper our revenue and profit.
Outside the
Our Outside theU.S. Segment provides BPS for international governments and commercial clients, transforming the lives of people around the world. Helping people find employment, access vital support, and remain healthy, these services include health and disability assessments, program administration for employment services, wellbeing solutions, and other job seeker related services. We support programs and deliver services in theU.K. , including the Health Assessment 27
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Advisory Service ("HAAS"), the Work & Health Programme, Fair Start, and Restart;
Australia , including jobactive and the Disability Employment Service; Canada ,
including Health Insurance British Columbia and the Employment Program of
British Columbia ; in addition to Italy , Saudi Arabia , Singapore , South Korea ,
and Sweden , where we predominantly provide employment support and job seeker
services.
Table MD&A 10: Outside the
For the Three Months Ended For the Six Months Ended
March 31, 2022 March 31, 2021 March 31, 2022 March 31, 2021
(dollars in thousands)
Revenue $ 205,961 $ 180,929 $ 388,549 $ 336,304
Cost of revenue 177,634 143,844 348,342 274,662
Gross profit 28,327 37,085 40,207 61,642
Selling, general, and administrative
expenses 24,011 22,013 45,351 42,045
Operating income/(loss) 4,316 15,072 (5,144) 19,597
Gross profit percentage 13.8 % 20.5 % 10.3 % 18.3 %
Operating margin percentage 2.1 % 8.3 % (1.3) % 5.8 %
Table MD&A 11: Outside the
Revenue Cost of Revenue Gross Profit
Amount % Change Amount % Change Amount % Change
(dollars in thousands)
Three Months Ended March 31,
2021 $ 180,929 $ 143,844 $ 37,085
Organic effect 25,167 13.9 % 34,782 24.2 % (9,615) (25.9) %
Acquired growth 6,308 3.5 % 3,747 2.6 % 2,561 6.9 %
Currency effect compared to
the prior period (6,443) (3.6) % (4,739) (3.3) % (1,704) (4.6) %
Three Months Ended March 31, 2022$ 205,961 13.8 %$ 177,634 23.5 %$ 28,327 (23.6) %
Table MD&A 12: Outside the
Revenue Cost of Revenue Gross Profit
Amount % Change Amount % Change Amount % Change
(dollars in thousands)
Six Months Ended March 31,
2021 $ 336,304 $ 274,662 $ 61,642
Organic effect 44,259 13.2 % 68,904 25.1 % (24,645) (40.0) %
Acquired growth 12,109 3.6 % 7,324 2.7 % 4,785 7.8 %
Currency effect compared to
the prior period $ (4,123) (1.2) % $ (2,548) (0.9) % (1,575) (2.6) %
Six Months Ended March 31,
2022 $ 388,549 15.5 % $ 348,342 26.8 % $ 40,207 (34.8) %
This segment experienced organic growth in revenue and costs, as well as
acquired growth, during the three and six months ended March 31, 2022 . These
were mitigated by declines in the values of the currencies in which we operate
against the U.S. Dollar.
Our results in fiscal year 2021 included a significant revenue benefit from the
recovery of our welfare-to-work contracts in Australia . Fiscal year 2022 has
also seen revenue and cost growth from our United Kingdom business, where the
Restart contract continued to ramp up. Margins on the Restart contract are
tempered as we have not yet reached our full service capacity.
Acquired growth is from the Connect Assist and BZB acquisitions.
A large employment services contract inAustralia ends inJune 2022 and we have been awarded a significantly lower caseload for the follow-on contract. This will result in reduced revenues in the latter half of this year, as well as costs related to the ramping down of our existing case load, including severance. We anticipate that we will record a small loss for this segment in the current fiscal year. 28
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Much of our revenue, including that on the Restart contract, stems from our employment services contracts. On many contracts, we recognize revenue based upon estimates of future employment outcomes, which have become more volatile due to the effects of the COVID-19 pandemic, including those actions adopted by governments and employers. We update our estimates regularly based upon actual performance and updated expectations, but a sudden change in employment markets may result in significant fluctuations in our revenue.
Liquidity and Capital Resources
Our primary sources of liquidity are cash on hand, cash flows from operating activities, and availability under our revolving credit facilities. As ofMarch 31, 2022 , we had$92.6 million in cash and cash equivalents. We believe that our current cash position, access to our credit facility, and cash flows generated from operations should be not only sufficient for our operating requirements but also to enable us to fund share repurchases and any required long-term debt payments through the next several fiscal years. See Note 7 to the Consolidated Financial Statements for a more detailed discussion of our debt financing arrangements.
Table MD&A 13: Net Change in Cash and Cash Equivalents and Restricted Cash
For the Six Months Ended
March 31, 2022 March 31, 2021
(in thousands)
Operating activities:
Net income $ 103,426 $ 144,691
Non-cash adjustments 79,491 55,851
Changes in working capital (71,058) 79,156
Net cash provided by operating activities 111,859 279,698
Net cash used in investing activities (22,902) (437,524)
Net cash (used in)/provided by financing activities (133,883)
185,967
Effect of foreign exchange rates on cash and cash
equivalents and restricted cash 324 3,263
Net change in cash and cash equivalents and
restricted cash $ (44,602) $ 31,404
Net Cash Provided By Operating Activities
Net cash provided by operating activities decreased by$167.8 million for the six months endedMarch 31, 2022 , compared to six months endedMarch 31, 2021 . This decrease is caused by:
•A decline in operating income;
•The timing of cash receipts, which provided a significant benefit in fiscal year 2021;
•The timing of cash payments, including tax payments previously deferred in the
•Increased interest payments related to our new credit facility; and
•The timing of income tax payments.
Our Days Sales Outstanding ("DSO") as of
The net cash used in investing activities were$22.9 million for the six months endedMarch 31, 2022 . These are primarily investments in capital expenditure. Further working capital true-up payments for our recent business combinations are anticipated in the latter half of the year. The prior year comparative total includes payments for the acquisition of Attain.
The$133.9 million cash used in financing activities during the six months endedMarch 31, 2022 , includes$34.7 million in dividend payments,$9.7 million in tax withholding payments for stock compensation, and$25.8 million for share repurchases. We have made$63.7 million of net repayments of debt related to the mandatory repayments on ourU.S. credit facility, voluntary repayments of ourU.S. revolver and a mix of mandatory and voluntary payments related to our subsidiary debt. 29
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With the acquisition of Aidvantage, we have incurred a liability to the seller
based upon future performance, which we have estimated at
Cash in Foreign Locations
We have no requirement to remit funds from our foreign locations to theU.S. . We will continue to explore opportunities to remit additional funds, taking into consideration the working capital requirements and relevant tax rules in each jurisdiction. When we are unable to remit funds back without incurring a penalty, we will consider these funds indefinitely reinvested until such time as these restrictions are changed. As a result, we do not recordU.S. deferred income taxes on any funds held in foreign jurisdictions. We have not attempted to calculate our potential liability from any transfer of these funds as any such transaction might include tax planning strategies that we have not fully explored. Accordingly, it is not possible to estimate the potential tax obligations if we were to remit all of our funds from foreign locations to theU.S. Free Cash Flow (Non-GAAP)
Table MD&A 14: Free Cash Flow (Non-GAAP)
For the Six Months Ended
March 31, 2022 March 31, 2021
(in thousands)
Net cash provided by operating activities $ 111,859 $ 279,698
Purchases of property and equipment and capitalized
software (22,898) (23,584)
Free cash flow (Non-GAAP) $ 88,961 $ 256,114
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in theU.S. requires us to make estimates, judgments, and assumptions that affect the amounts reported. Actual results could differ from those estimates. The 2021 Form 10-K, as filed with theSEC onNovember 18, 2021 , includes a summary of critical accounting policies we believe are the most important to aid in understanding our financial results. There have been no changes to those critical accounting policies that have had a material impact on our reported amounts of assets, liabilities, revenues, or expenses during the six months endedMarch 31, 2022 .
Non-GAAP and Other Measures
We utilize non-GAAP measures where we believe it will assist users of our financial statements in understanding our business. The presentation of these measures is meant to complement, but not replace, other financial measures in this document. The presentation of non-GAAP numbers is not meant to be considered in isolation, nor as an alternative to revenue growth, cash flows from operating activities, net income, or earnings per share as measures of performance. These non-GAAP measures, as determined and presented by us, may not be comparable to related or similarly titled measures presented by other companies. For the six months endedMarch 31, 2022 , 17% of our revenue was generated outside theU.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 fiscal year's results for all foreign businesses using the exchange rates in the prior fiscal year. We refer to this adjusted revenue on a "constant currency basis." In recent years, we have made a number of acquisitions. We believe users of our financial statements wish to evaluate the performance of our operations, excluding changes that have arisen due to businesses acquired or disposed of. We identify acquired revenue and cost of revenue by showing these results for periods for which no comparative results exist within our financial statements. We identify revenue and cost of revenue that has been disposed of in a similar manner. This information is supplemented by our calculations of organic growth. To calculate organic growth, we compare current fiscal year results excluding results from acquisitions or disposals, to our prior fiscal year results. Our recent acquisitions have resulted in significant intangible assets which are amortized over their estimated useful lives. We believe users of our financial statements wish to understand the performance of the business by using a methodology that allows them to compare operating activities excluding the effects of the amortization of intangible assets. Accordingly, we have calculated our operating profit, net income, and earnings per share excluding the effect of the amortization of intangible assets. We have included a table showing our reconciliation of these income measures to their corresponding GAAP measures.
In order to sustain our cash flows from operations, we regularly refresh our fixed assets and technology. We believe that
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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 capital expenditures. We provide free cash flow to complement our statement of cash flows. Free cash flow shows the effects of the Company's operations and replacement capital expenditures and excludes the cash flow effects of acquisitions, purchases of our common stock, dividend payments, and other financing transactions. We have provided a reconciliation of cash flows from operating activities to free cash flow in "Liquidity and Capital Resources." To sustain our operations, our principal source of financing comes from receiving payments from our customers. We believe that users of our financial statements wish to evaluate our efficiency in converting revenue into cash receipts. 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. As noted above, we have a$2.10 billion corporate 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 corporate 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 months. Accordingly, we have included pro forma data for VES, Aidvantage, and Connect Assist in the table below. We have provided a reconciliation from net income to Non-GAAP Adjusted EBITA, Non-GAAP Adjusted EBITDA, and Non-GAAP Pro Forma Adjusted EBITDA as shown below. Our current credit facilities utilized a different version of EBITDA from that of the credit facility used in prior years.
Table MD&A 15: Reconciliation of Net Income to Non-GAAP Adjusted EBITA, Non-GAAP Adjusted EBITDA, and Non-GAAP Pro Forma Adjusted EBITDA
For the Trailing
For the Three Twelve
Months Ended Months Ended
March 31, 2022 March 31, 2022
(in thousands)
Net income $ 50,096 $ 249,935
Adjustments:
Interest expense 9,438 32,858
Other expense, net (715) 8,406
Provision for income taxes 16,469 73,390
Amortization of intangibles 22,856 78,032
Stock compensation expense 6,804 30,127
Acquisition-related expenses 175 9,154
Adjusted EBITA - Non-GAAP measure 105,123 481,902
Depreciation and amortization of property, equipment, and capitalized software
9,834 44,725
Adjusted EBITDA - Non-GAAP measure 114,957 526,627
Pro forma adjusted EBITDA related to acquisitions - Non-GAAP measure
- 40,089
Other pro forma adjustments allowed by our debt agreement $ 9,633 $ 20,931
Pro forma adjusted EBITDA - Non-GAAP measure $ 124,590 $ 587,647
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