Company Quick10K Filing
Price78.47 EPS4
Shares65 P/E21
MCap5,086 P/FCF14
Net Debt-116 EBIT338
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-06-30 Filed 2020-08-06
10-Q 2020-03-31 Filed 2020-05-07
10-Q 2019-12-31 Filed 2020-02-06
10-K 2019-09-30 Filed 2019-11-26
10-Q 2019-06-30 Filed 2019-08-08
10-Q 2019-03-31 Filed 2019-05-09
10-Q 2018-12-31 Filed 2019-02-07
10-K 2018-09-30 Filed 2018-11-20
10-Q 2018-06-30 Filed 2018-08-09
10-Q 2018-03-31 Filed 2018-05-10
10-Q 2017-12-31 Filed 2018-02-08
10-K 2017-09-30 Filed 2017-11-20
10-Q 2017-06-30 Filed 2017-08-03
10-Q 2017-03-31 Filed 2017-05-04
10-Q 2016-12-31 Filed 2017-02-09
10-K 2016-09-30 Filed 2016-11-21
10-Q 2016-06-30 Filed 2016-08-04
10-Q 2016-03-31 Filed 2016-05-06
10-Q 2015-12-31 Filed 2016-02-05
10-K 2015-09-30 Filed 2015-11-16
10-Q 2015-06-30 Filed 2015-08-07
10-Q 2015-03-31 Filed 2015-05-08
10-Q 2014-12-31 Filed 2015-02-06
10-K 2014-09-30 Filed 2014-11-17
10-Q 2014-06-30 Filed 2014-08-08
10-Q 2014-03-31 Filed 2014-05-09
10-Q 2013-12-31 Filed 2014-02-07
10-K 2013-09-30 Filed 2013-11-19
10-Q 2013-06-30 Filed 2013-08-09
10-Q 2013-03-31 Filed 2013-05-10
10-Q 2012-12-31 Filed 2013-02-08
10-K 2012-09-30 Filed 2012-11-16
10-Q 2012-06-30 Filed 2012-08-08
10-Q 2012-03-31 Filed 2012-05-04
10-Q 2011-12-31 Filed 2012-02-03
10-K 2011-09-30 Filed 2011-11-14
10-Q 2011-06-30 Filed 2011-08-09
10-Q 2011-03-31 Filed 2011-05-10
10-Q 2010-12-31 Filed 2011-02-08
10-K 2010-09-30 Filed 2010-11-19
10-Q 2010-06-30 Filed 2010-08-05
10-Q 2010-03-31 Filed 2010-05-06
10-Q 2009-12-31 Filed 2010-02-04
8-K 2020-08-11 Earnings, Exhibits
8-K 2020-06-19
8-K 2020-05-12
8-K 2020-04-03
8-K 2020-03-23
8-K 2020-02-10
8-K 2019-11-22
8-K 2019-08-12
8-K 2019-08-02
8-K 2019-05-13
8-K 2019-03-29
8-K 2019-03-22
8-K 2019-02-11
8-K 2019-01-16
8-K 2019-01-10
8-K 2018-12-14
8-K 2018-11-26
8-K 2018-10-09
8-K 2018-08-13
8-K 2018-05-14
8-K 2018-03-15
8-K 2018-02-12
8-K 2018-01-16

MMS 10Q Quarterly Report

Part I. Financial Information
Item 1. Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II. Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 6. Exhibits.
EX-31.1 a311-mmsx2020x06x30x10.htm
EX-31.2 a312-mmsx2020x06x30x10.htm
EX-32.1 a321-mmsx2020x06x30x10.htm
EX-32.2 a322-mmsx2020x06x30x10.htm

Maximus Earnings 2020-06-30

Balance SheetIncome StatementCash Flow
Assets, Equity
Rev, G Profit, Net Income
Ops, Inv, Fin


Washington, D.C. 20549

(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2020
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from   to
Commission File Number: 1-12997
Maximus, Inc.
(Exact name of registrant as specified in its charter)
Virginia 54-1000588
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
1891 Metro Center Drive, Reston, Virginia
(Address of principal executive offices) (Zip Code)
(703) 251-8500
(Registrant’s telephone number, including area code)
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 whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer 
Accelerated filer 
Non-accelerated filer 
Smaller reporting company 
Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  No 
As of August 3, 2020, there were 61,312,619 shares of the registrant’s common stock (no par value) outstanding.

Maximus, Inc.
Quarterly Report on Form 10-Q
For the Quarter Ended June 30, 2020
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 6.

Throughout this Quarterly Report on Form 10-Q, the terms “Company,” “we,” “us,” “our” and “Maximus” refer to Maximus, Inc. and its subsidiaries, unless the context requires otherwise.
Included in this Quarterly Report on Form 10-Q are forward-looking statements within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as: “anticipate,” “intend,” “plan,” “goal,” “seek,” “opportunity,” “could,” “potential,” “believe,” “project,” “estimate,” “expect,” “strategy,” “future,” “likely,” “may,” “should,” “will” and similar references to future periods.
Forward-looking statements that are not historical facts, including statements about our confidence, strategies and initiatives and our expectations about revenues, results of operations, profitability, liquidity, market demand or the impact of the COVID-19 pandemic are forward-looking statements that involve risks and uncertainties. These risks could cause our actual results to differ materially from those indicated by such forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:
the continued spread of the COVID-19 virus, including the speed, depth, geographic reach and duration of the spread, and the actions taken or to be taken by us, our customers and the governments of jurisdictions in which we operate in response to COVID-19;
the demand for our services and products, including based on any downturns in the economy;
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 Item 1A of this Quarterly Report on Form 10-Q and in Exhibit 99.1 of our Annual Report on Form 10-K for the year ended September 30, 2019, which was filed with the Securities and Exchange Commission on November 26, 2019, and as supplemented in our Form 10-Q for the quarter ended March 31, 2020, should be considered.
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.

Item 1. Consolidated Financial Statements.
Maximus, Inc.
(Amounts in thousands, except per share data)
 Three Months Ended June 30,Nine Months Ended June 30,
Revenue$901,337  $730,710  $2,537,701  $2,131,849  
Cost of revenue715,734  556,463  2,023,550  1,628,915  
Gross profit185,603  174,247  514,151  502,934  
Selling, general and administrative expenses89,582  81,604  283,662  239,377  
Amortization of intangible assets8,712  9,049  26,734  24,026  
Operating income87,309  83,594  203,755  239,531  
Interest expense616  420  1,565  2,614  
Other (expense)/income, net(671) 556  621  3,048  
Income before income taxes86,022  83,730  202,811  239,965  
Provision for income taxes21,558  20,765  51,963  59,511  
Net income64,464  62,965  150,848  180,454  
Income/(loss) attributable to noncontrolling interests  67    (281) 
Net income attributable to Maximus$64,464  $62,898  $150,848  $180,735  
Basic earnings per share$1.04  $0.98  $2.38  $2.80  
Diluted earnings per share$1.04  $0.97  $2.37  $2.79  
Dividends paid per share$0.28  $0.25  $0.84  $0.75  
Weighted average shares outstanding:  
Basic61,882  64,405  63,463  64,534  
Diluted62,102  64,759  63,666  64,800  

See notes to unaudited consolidated financial statements.

Maximus, Inc.
(Amounts in thousands)
 Three Months Ended June 30,Nine Months Ended June 30,
Net income$64,464  $62,965  $150,848  $180,454  
Foreign currency translation adjustments3,432  (1,974) (1,304) (4,157) 
Comprehensive income67,896  60,991  149,544  176,297  
Comprehensive income/(loss) attributable to noncontrolling interests  67    (281) 
Comprehensive income attributable to Maximus$67,896  $60,924  $149,544  $176,578  

See notes to unaudited consolidated financial statements.

Maximus, Inc.
(Amounts in thousands)
 June 30,
September 30,
Current assets:  
Cash and cash equivalents$81,548  $105,565  
Accounts receivable — billed and billable, net of reserves of $13,031 and $5,382
626,471  476,690  
Accounts receivable — unbilled203,267  123,884  
Income taxes receivable8,284  20,805  
Prepaid expenses and other current assets59,942  62,481  
Total current assets979,512  789,425  
Property and equipment, net73,319  99,589  
Capitalized software, net35,447  32,369  
Operating lease right-of-use assets171,041  —  
Goodwill586,757  584,469  
Intangible assets, net151,115  179,250  
Deferred contract costs, net20,267  18,921  
Deferred compensation plan assets33,834  32,908  
Deferred income taxes3,450  186  
Other assets8,244  8,615  
Total assets$2,062,986  $1,745,732  
Current liabilities:  
Accounts payable and accrued liabilities$217,831  $177,786  
Accrued compensation and benefits130,396  106,789  
Deferred revenue48,743  43,344  
Income taxes payable4,725  13,952  
Current portion of long-term debt and other borrowings7,000  9,658  
Operating lease liabilities74,878  —  
Other liabilities18,971  12,709  
Total current liabilities502,544  364,238  
Deferred revenue, less current portion30,090  32,341  
Deferred income taxes44,532  46,560  
Long-term debt, less current portion145,161  231  
Deferred compensation plan liabilities, less current portion34,302  34,079  
Operating lease liabilities, less current portion103,236  —  
Other liabilities8,174  20,082  
Total liabilities868,039  497,531  
Shareholders’ equity:  
Common stock, no par value; 100,000 shares authorized; 61,313 and 63,979 shares issued and outstanding at June 30, 2020, and September 30, 2019, at stated amount, respectively
517,200  498,433  
Accumulated other comprehensive loss(46,684) (45,380) 
Retained earnings724,431  794,739  
Total Maximus shareholders' equity1,194,947  1,247,792  
Noncontrolling interests  409  
Total equity1,194,947  1,248,201  
Total liabilities and equity$2,062,986  $1,745,732  
See notes to unaudited consolidated financial statements.

Maximus, Inc.
(Amounts in thousands)
 Nine Months Ended June 30,
Cash flows from operations:  
Net income$150,848  $180,454  
Adjustments to reconcile net income to cash flows from operations:  
Depreciation and amortization of property and equipment and
capitalized software
47,496  34,588  
Amortization of intangible assets26,734  24,026  
Deferred income taxes(5,210) 11,196  
Stock compensation expense17,558  15,323  
Gain on sale of a business(1,706)   
Change in assets and liabilities net of effects of business combinations  
Accounts receivable — billed and billable(147,626) (108,131) 
Accounts receivable — unbilled(80,267) 46,172  
Prepaid expenses and other current assets529  (2,933) 
Deferred contract costs(1,396) (8,142) 
Accounts payable and accrued liabilities48,622  53,462  
Accrued compensation and benefits33,647  9,282  
Deferred revenue2,806  7,857  
Income taxes563  3,139  
Operating lease right-of-use assets and liabilities(1,071)   
Other assets and liabilities4,556  (2,582) 
Cash flows from operations96,083  263,711  
Cash flows from investing activities:  
Purchases of property and equipment and capitalized software costs(28,436) (39,033) 
Acquisitions of businesses, net of cash acquired(2,611) (422,049) 
Proceeds from the sale of a business3,250    
Maturities of short-term investments  19,996  
Other385  380  
Cash used in investing activities(27,412) (440,706) 
Cash flows from financing activities:  
Cash dividends paid to Maximus shareholders(52,988) (47,936) 
Purchases of Maximus common stock(166,959) (46,068) 
Tax withholding related to RSU vesting(10,614) (8,915) 
Borrowings under credit facility and other loan agreements421,488  320,048  
Repayment of credit facility and other long-term debt(278,971) (316,597) 
Other(957) (133) 
Cash used in financing activities(89,001) (99,601) 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(174) (994) 
Net decrease in cash, cash equivalents and restricted cash(20,504) (277,590) 
Cash, cash equivalents and restricted cash, beginning of period116,492  356,559  
Cash, cash equivalents and restricted cash, end of period$95,988  $78,969  

See notes to unaudited consolidated financial statements.

Maximus, Inc.
(Amounts in thousands)
Balance at March 31, 202061,313  $511,023  $(50,116) $677,561  $—  $1,138,468  
Net income—  —  —  64,464  —  64,464  
Foreign currency translation—  —  3,432  —  —  3,432  
Cash dividends—  —  —  (17,175) —  (17,175) 
Dividends on RSUs—  419  —  (419) —  —  
Stock compensation expense—  5,758  —  —  —  5,758  
Balance at June 30, 202061,313  $517,200  $(46,684) $724,431  $—  $1,194,947  

Noncontrolling interestTotal
Balance at September 30, 201963,979  $498,433  $(45,380) $794,739  $409  $1,248,201  
Net income—  —  —  150,848  —  150,848  
Foreign currency translation—  —  (1,304) —  —  (1,304) 
Cash dividends—  —  —  (52,988) (409) (53,397) 
Dividends on RSUs—  1,209  —  (1,209) —  —  
Purchases of Maximus common stock(2,767) —  —  (166,959) —  (166,959) 
Stock compensation expense—  17,558  —  —  —  17,558  
RSUs vested101  —  —  —  —  
Balance at June 30, 202061,313  $517,200  $(46,684) $724,431  $  $1,194,947  


Maximus, Inc.
(Amounts in thousands)
Balance at March 31, 201963,811  $498,269  $(39,136) $705,824  $2,624  $1,167,581  
Net income—  —  —  62,898  67  62,965  
Foreign currency translation—  —  (1,974) —  —  (1,974) 
Cash dividends—  —  —  (15,953) (2,452) (18,405) 
Dividends on RSUs—  399  —  (399) —  —  
Stock compensation expense—  5,419  —  —  —  5,419  
Acquisition of part of noncontrolling interest—  (903) —  —  216  (687) 
Balance at June 30, 201963,811$503,184  $(41,110) $752,370  $455  $1,214,899  

Balance at September 30, 201864,371  $487,539  $(36,953) $633,281  $2,552  $1,086,419  
Cumulative impact from adopting ASC Topic 606 on October 1, 2018—  —  —  32,929  553  33,482  
Net income—  —  —  180,735  (281) 180,454  
Foreign currency translation—  —  (4,157) —  —  (4,157) 
Cash dividends—  —  —  (47,936) (2,585) (50,521) 
Dividends on RSUs—  1,225  —  (1,225) —  —  
Purchases of Maximus common stock(716) —  —  (45,414) —  (45,414) 
Stock compensation expense—  15,323  —  —  —  15,323  
RSUs vested156  —  —  —  —  —  
Acquisition of part of noncontrolling interest—  (903) —  —  216  (687) 
Balance at June 30, 201963,811$503,184  $(41,110) $752,370  $455  $1,214,899  

See notes to unaudited consolidated financial statements.


Maximus, Inc.
Notes to Unaudited Consolidated Financial Statements
For the Three and Nine Months Ended June 30, 2020 and 2019

1. Organization and Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. As permitted by these instructions, they do not include all of the information and notes required by generally accepted accounting principles (GAAP) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. All intercompany balances and transactions have been eliminated in consolidation. The results of operations for the three and nine months ended June 30, 2020, are not necessarily indicative of the results that may be expected for the full fiscal year. The balance sheet at September 30, 2019, has been derived from the audited financial statements at that date, but does not include all of the information and notes required by GAAP for complete financial statements.
These financial statements should be read in conjunction with the consolidated audited financial statements and the notes thereto at September 30, 2019 and 2018, and for each of the three years ended September 30, 2019, included in our Annual Report on Form 10-K which was filed with the Securities and Exchange Commission on November 26, 2019.
The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities and the reported amounts of revenue and expenses. At each reporting period end, we make estimates including those related to revenue recognition and cost estimation on certain contracts, the realizability of goodwill and amounts related to income taxes, certain accrued liabilities and contingencies and litigation.
We base our estimates on historical experience and expectations of the future that we believe to be reasonable. The economic and political impacts of the COVID-19 pandemic increases uncertainty, which has reduced our ability to use past results to estimate future performance. Accordingly, our estimates may be subject to greater volatility than has been the case in the past.
Our balance sheet includes goodwill valued at $586.8 million. This balance is allocated between reporting units, which are consistent with our three operating segments. Goodwill is not amortized but is tested for impairment when necessary and no less than once per year. We performed our last annual goodwill impairment test as of July 1, 2019. As of July 1, 2019, none of our reporting units showed any signs of impairment and all held a fair value estimated to be at least twice as high as their carrying value. We are in the process of performing our 2020 goodwill impairment test; at this time, we do not believe any goodwill impairment has occurred. This is based upon a number of factors, including the long-term viability of our business and the creditworthiness of our customer base.
Our balance sheet includes a number of long-lived assets, including property and equipment, capitalized software, operating lease right-of-use assets, deferred contract costs and intangible assets. These assets are depreciated or amortized over their estimated useful economic lives but are subject to impairment if events indicate that the carrying amount may not be recoverable. At this time, there are no significant balances which we believe are not recoverable.
Our balance sheet includes $829.7 million of billed, billable and unbilled accounts receivable, net of reserves. We regularly evaluate this balance for recoverability and reserve those balances where we no longer believe that collection is probable. Bad debt expense has not historically been significant to our business due to the nature of our customers. During the nine months ended June 30, 2020, we recorded bad debt expense of $8.8 million. We have reserved balances against customers who we believe are experiencing difficulties during the COVID-19 pandemic and may not be able to reimburse us for work performed.
As disclosed in "Note 4. Revenue Recognition," revenue for some of our welfare-to-work contracts in the Outside the U.S. Segment is based upon achievement of future outcomes as defined in each contract. Specifically, we are paid as individuals attain employment goals, which may take many months to achieve.

Revenue is recognized on these contracts over the period of performance. Employment markets worldwide suffered a significant shock during the second quarter of the current fiscal year and many employment opportunities have been terminated or are no longer available. While we expect the volume of new program participants to increase as a result of disruption to employment markets, participants in programs prior to March 2020 have experienced reduced opportunities to reach sustained employment. This has resulted in revised estimates to our outcome fees and a reduction in our unbilled revenue balance.
Many of our contracts in the United States are cost-plus contracts, where we are reimbursed for costs that are allowable, allocable and reasonable. Due to the COVID-19 pandemic, we are incurring incremental and unusual costs, including additional sick pay and idle labor for employees who are unable to perform services due to their health issues, child care issues or physical restrictions imposed on their workplace. Although the U.S. Federal Government, which provides the majority of our cost-plus contracts, has provided regular guidance, there is some uncertainty within other contracts as to recoverable costs.

Changes in financial reporting
Effective October 1, 2019, we adopted ASU No. 2016-02, Leases (Topic 842). The new standard requires that assets and liabilities arising under leases be recognized on the balance sheet, except for those with an initial term of less than twelve months. We adopted this standard using a modified retrospective approach. Accordingly, we did not recast prior period financial information. Certain elections were made in adopting the standard.
We elected to use the package of practical expedients which, among other things, allows us to not reassess historical lease classification.
We do not separate lease and non-lease components for all classes of leases, which allows us to account for a lease as a single component.
We used the optional transition method, which did not require us to recast our comparative periods.
We did not use the hindsight practical expedients, which would have allowed us to use hindsight in determining the reasonably certain lease term.
We did not adjust our accounting for leases with an initial term of twelve months or less.

Upon adopting Topic 842, we recognized a lease liability of $214.5 million, reflecting the present value of the future remaining minimum lease payments. Changes to our opening balance sheet are summarized below. There was no cumulative impact to our retained earnings and the changes did not cause any material changes in our statements of operations or our statements of cash flows. The adoption of Topic 842 does not affect our compliance with our existing contracts, including our credit facility.
(dollars in thousands)Balance at September 30, 2019Adjustments due to adoption of new standardOpening balance at October 1, 2019
Prepaid expenses and other current assets$62,481  $(6,131) $56,350  
Operating lease right-of-use assets—  206,314  206,314  
Liabilities and shareholders' equity
Accounts payable and accrued expenses177,786  (5,250) 172,536  
Operating lease liabilities—  88,276  88,276  
Other current liabilities12,709  (648) 12,061  
Operating lease liabilities, net of current portion—  126,197  126,197  
Other long-term liabilities20,082  (8,392) 11,690  

At the adoption of Topic 842, the Company recognized deferred tax assets and liabilities corresponding to the operating lease liabilities and operating right-of-use assets, respectively. These balances offset each other and no net effect resulted from this change.
Additional information and disclosures relating to this change are included within "Note 3. Leases."

Forthcoming changes
In August 2018, the Financial Accounting Standards Board (FASB) issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This accounting guidance requires customers in cloud-computing arrangements to identify and defer certain implementation costs in a manner broadly consistent with that of existing guidance on the costs to develop or obtain internal-use software. Costs capitalized under this guidance will be expensed over the term of the cloud computing arrangement. We will adopt this guidance on October 1, 2020 using a prospective approach. The effect on our financial statements will be dependent upon our adoption of future cloud-based computing initiatives.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This update introduces a new model for recognizing credit losses on financial instruments, including losses on accounts receivable. This update replaces the existing incurred loss impairment model with an expected loss model. We will adopt this guidance on October 1, 2020 and any changes will be recorded as a cumulative adjustment to retained earnings. We are currently assessing the future impact of this update on our consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. This standard will not change the manner in which we would identify a goodwill impairment but would change any subsequent calculation of an impairment charge. We will adopt this guidance on October 1, 2020. The effect of this new standard will depend upon the outcome of future goodwill impairment tests.
Other recent accounting pronouncements are not expected to have a material effect on our financial statements.