DLH Reports Fiscal 2022 Third Quarter Results
Highlights
- Third quarter revenue increased to
$66.4 million in fiscal 2022 from$61.6 million in fiscal 2021, reflecting growth of 8% year-over-year - Earnings were
$4.9 million , or$0.34 per diluted share, for the fiscal 2022 third quarter versus$2.9 million , or$0.21 per diluted share, for the third quarter of fiscal 2021 - The Company's term loan was reduced to
$28.5 million during the quarter versus$37.5 million atMarch 31, 2022 - Contract backlog was
$509.7 million as ofJune 30, 2022 versus$554.7 million at the end of the second quarter
Management Discussion
“I'm very pleased to announce that DLH continued to post strong performance derived from organic growth, margin expansion, and solid bottom line results," said DLH President and Chief Executive Officer
“During the quarter the Company won two key IDIQ contracts, with task orders not yet in our backlog, that position us well for fiscal 2023 and beyond. This includes a contract to provide health-related R&D and support services to the
Results for the Three Months Ended
Revenue for the third quarter of fiscal 2022 was
Income from operations was
Interest expense was
For the three months ended
The third quarter results include final closeout activities related to the short-term FEMA COVID support contracts and the related agreements between DLH and its subcontractors. Reconciliation of estimated pass-through travel and accommodation expenses to the final reimbursable expenses resulted in a reduction to expenses previously accrued and pending payment and a corresponding reduction to revenue. This reduction reflected the value of in-kind expenses furnished by the State in support of the contract.
On a non-GAAP basis, EBITDA for the three months ended
Key Financial Indicators
Fiscal year to date, DLH used
As of
At
Conference Call and Webcast Details
DLH management will discuss third quarter results and provide a general business update, including current competitive conditions and strategies, during a conference call beginning at
A digital recording of the conference call will be available for replay two hours after the completion of the call and can be accessed on the DLH Investor Relations website or by dialing 877-344-7529 and entering the conference ID 2605060.
About DLH
DLH (NASDAQ:DLHC) delivers improved health and readiness solutions for federal programs through research, development, and innovative care processes. The Company’s experts in public health, performance evaluation, and health operations solve the complex problems faced by civilian and military customers alike, leveraging digital transformation, artificial intelligence, advanced analytics, cloud-based applications, telehealth systems, and more. With over 2,400 employees dedicated to the idea that “Your Mission is Our Passion,” DLH brings a unique combination of government sector experience, proven methodology, and unwavering commitment to public health to improve the lives of millions. For more information, visit www.DLHcorp.com.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:
This press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to future events or DLH`s future financial performance. Any statements that refer to expectations, projections or other characterizations of future events or circumstances or that are not statements of historical fact (including without limitation statements to the effect that the Company or its management “believes”, “expects”, “anticipates”, “plans”, “intends” and similar expressions) should be considered forward looking statements that involve risks and uncertainties which could cause actual events or DLH’s actual results to differ materially from those indicated by the forward-looking statements. Forward-looking statements in this release include, among others, statements regarding estimates of future revenues, operating income, earnings and cash flow. These statements reflect our belief and assumptions as to future events that may not prove to be accurate. Our actual results may differ materially from such forward-looking statements made in this release due to a variety of factors, including: the outbreak of the novel coronavirus (“COVID-19”), including the measures to reduce its spread, and its impact on the economy and demand for our services, are uncertain, cannot be predicted, and may precipitate or exacerbate other risks and uncertainties; the risk that we will not realize the anticipated benefits of acquisitions; the challenges of managing larger and more widespread operations; contract awards in connection with re-competes for present business and/or competition for new business; compliance with new bank financial and other covenants; changes in client budgetary priorities; government contract procurement (such as bid and award protests, small business set asides, loss of work due to organizational conflicts of interest, etc.) and termination risks; the ability to successfully integrate the operations of acquisitions; the impact of inflation and higher interest rates; and other risks described in our
Such forward-looking statements are made as of the date hereof and may become outdated over time. The Company does not assume any responsibility for updating forward-looking statements, except as may be required by law.
CONTACTS:
INVESTOR RELATIONS |
Contact: |
Phone: 646-438-9385 |
Email: cwitty@darrowir.com |
TABLES TO FOLLOW
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands except per share amounts)
(unaudited) | (unaudited) | ||||||||||
Three Months Ended | Nine Months Ended | ||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||
Revenue | $ | 66,440 | $ | 61,555 | $ | 327,940 | $ | 180,913 | |||
Cost of Operations: | |||||||||||
Contract costs | 49,668 | 48,365 | 271,184 | 143,092 | |||||||
General and administrative costs | 7,535 | 6,237 | 22,178 | 18,522 | |||||||
Corporate development costs | 250 | — | 250 | — | |||||||
Depreciation and amortization | 1,873 | 2,014 | 5,740 | 6,105 | |||||||
Total operating costs | 59,326 | 56,616 | 299,352 | 167,719 | |||||||
Income from operations | 7,114 | 4,939 | 28,588 | 13,194 | |||||||
Interest expense, net | 512 | 893 | 1,739 | 2,977 | |||||||
Income before income taxes | 6,602 | 4,046 | 26,849 | 10,217 | |||||||
Income tax expense | 1,738 | 1,166 | 7,003 | 2,956 | |||||||
Net income | $ | 4,864 | $ | 2,880 | $ | 19,846 | $ | 7,261 | |||
Net income per share - basic | $ | 0.38 | $ | 0.23 | $ | 1.55 | $ | 0.58 | |||
Net income per share - diluted | $ | 0.34 | $ | 0.21 | $ | 1.40 | $ | 0.54 | |||
Weighted average common shares outstanding | |||||||||||
Basic | 12,812 | 12,545 | 12,779 | 12,529 | |||||||
Diluted | 14,235 | 13,655 | 14,205 | 13,694 | |||||||
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except par value of shares)
2022 |
2021 |
||||||
(unaudited) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash | $ | 1,060 | $ | 24,051 | |||
Accounts receivable | 50,337 | 33,447 | |||||
Other current assets | 4,417 | 4,265 | |||||
Total current assets | 55,814 | 61,763 | |||||
Equipment and improvements, net | 1,355 | 1,912 | |||||
Operating lease right-of-use assets | 17,429 | 19,919 | |||||
65,643 | 65,643 | ||||||
Intangible assets, net | 42,530 | 47,469 | |||||
Other long-term assets | 365 | 464 | |||||
Total assets | $ | 183,136 | $ | 197,170 | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Operating lease liabilities - current | $ | 2,227 | $ | 2,261 | |||
Accrued payroll | 13,157 | 9,125 | |||||
Deferred revenue | — | 22,273 | |||||
Accounts payable, accrued expenses, and other current liabilities | 35,098 | 32,717 | |||||
Total current liabilities | 50,482 | 66,376 | |||||
Long-term liabilities: | |||||||
Deferred taxes, net | 1,175 | 1,176 | |||||
Operating lease liabilities - long-term | 17,028 | 19,374 | |||||
Debt obligations - long-term, net of deferred financing costs | 26,783 | 44,636 | |||||
Total long-term liabilities | 44,986 | 65,186 | |||||
Total liabilities | 95,468 | 131,562 | |||||
Shareholders' equity: | |||||||
Common stock, |
13 | 13 | |||||
Additional paid-in capital | 90,107 | 87,893 | |||||
Accumulated deficit | (2,452 | ) | (22,298 | ) | |||
Total shareholders’ equity | 87,668 | 65,608 | |||||
Total liabilities and shareholders' equity | $ | 183,136 | $ | 197,170 | |||
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(unaudited) | |||||||
Nine Months Ended | |||||||
2022 | 2021 | ||||||
Operating activities | |||||||
Net income | $ | 19,846 | $ | 7,261 | |||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |||||||
Depreciation and amortization | 5,740 | 6,105 | |||||
Amortization of deferred financing costs charged to interest expense | 497 | 610 | |||||
Stock based compensation expense | 1,952 | 1,317 | |||||
Deferred taxes, net | (1 | ) | 2,177 | ||||
Changes in operating assets and liabilities | |||||||
Accounts receivable | (16,890 | ) | (3,868 | ) | |||
Other current assets | (152 | ) | (133 | ) | |||
Accrued payroll | 4,032 | (403 | ) | ||||
Deferred revenue | (22,273 | ) | — | ||||
Accounts payable, accrued expenses, and other current liabilities | 2,380 | 1,912 | |||||
Other long-term assets and liabilities | 110 | 410 | |||||
Net cash provided by (used in) operating activities | (4,759 | ) | 15,388 | ||||
Investing activities | |||||||
Business acquisition adjustment, net of cash acquired | — | 59 | |||||
Purchase of equipment and improvements | (244 | ) | (53 | ) | |||
Net cash provided by (used in) investing activities | (244 | ) | 6 | ||||
Financing activities | |||||||
Proceeds from debt obligations | 13,500 | 23,950 | |||||
Repayments of debt obligations | (31,750 | ) | (40,150 | ) | |||
Payments of deferred financing costs | — | (43 | ) | ||||
Proceeds from issuance of common stock upon exercise of options and warrants | 543 | 231 | |||||
Common stock surrendered for the exercise of stock options - tax obligations | (281 | ) | — | ||||
Net cash used in financing activities | (17,988 | ) | (16,012 | ) | |||
Net change in cash | (22,991 | ) | (618 | ) | |||
Cash at beginning of period | 24,051 | 1,357 | |||||
Cash at end of period | $ | 1,060 | $ | 739 | |||
Supplemental disclosure of cash flow information | |||||||
Cash paid during the period for interest | $ | 1,195 | $ | 2,321 | |||
Cash paid during the period for income taxes | $ | 6,403 | $ | 396 | |||
Supplemental disclosure of non-cash activity | |||||||
Common stock surrendered for the exercise of stock options | $ | 256 | $ | — | |||
Revenue Metrics
Nine Months Ended | |||||
2022 | 2021 | ||||
Market Mix: | |||||
Defense/ |
36 | % | 57 | % | |
Human |
48 | % | 17 | % | |
Public Health/Life Sciences | 17 | % | 26 | % | |
Contract Mix: | |||||
Time and Materials | 80 | % | 76 | % | |
Cost Reimbursable | 11 | % | 20 | % | |
Firm Fixed Price | 9 | % | 4 | % | |
Prime vs Sub: | |||||
Prime | 93 | % | 88 | % | |
Subcontractor | 7 | % | 12 | % | |
Non-GAAP Financial Measures
The Company uses EBITDA and EBITDA as a percent of revenue as supplemental non-GAAP measures of performance. We define EBITDA as net income excluding (i) interest expense, (ii) provision for or benefit from income taxes and (iii) depreciation and amortization. EBITDA as a percent of revenue is EBITDA for the measurement period divided by revenue for the same period.
The Company is presenting additional non-GAAP measures to describe the impact from two short-term
These non-GAAP measures of performance are used by management to conduct and evaluate its business during its review of operating results for the periods presented. Management and the Company's Board utilize these non-GAAP measures to make decisions about the use of the Company's resources, analyze performance between periods, develop internal projections and measure management performance. We believe that these non-GAAP measures are useful to investors in evaluating the Company's ongoing operating and financial results and understanding how such results compare with the Company's historical performance.
Reconciliation of GAAP net income to EBITDA, a non-GAAP measure:
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
(in thousands) | 2022 | 2021 | Change | 2022 | 2021 | Change | |||||||||||||||||
Net income | $ | 4,864 | $ | 2,880 | $ | 1,984 | $ | 19,846 | $ | 7,261 | $ | 12,585 | |||||||||||
(i) Interest expense, net | 512 | 893 | (381 | ) | 1,739 | 2,977 | (1,238 | ) | |||||||||||||||
(ii) Provision for taxes | 1,738 | 1,166 | 572 | 7,003 | 2,956 | 4,047 | |||||||||||||||||
(iii) Depreciation and amortization | 1,873 | 2,014 | (141 | ) | 5,740 | 6,105 | (365 | ) | |||||||||||||||
EBITDA | $ | 8,987 | $ | 6,953 | $ | 2,034 | $ | 34,328 | $ | 19,299 | $ | 15,029 | |||||||||||
Net income as a % of revenue | 7.3 | % | 4.7 | % | 2.6 | % | 6.1 | % | 4.0 | % | 2.1 | % | |||||||||||
EBITDA as a % of revenue | 13.5 | % | 11.3 | % | 2.2 | % | 10.5 | % | 10.7 | % | (0.2 | )% | |||||||||||
Revenue | $ | 66,440 | $ | 61,555 | $ | 4,885 | $ | 327,940 | $ | 180,913 | $ | 147,027 | |||||||||||
Reconciliation of GAAP revenue, operating income, net income, diluted earnings per share, and non-GAAP EBITDA reported for the three and nine months ended to the same metrics for our contract portfolio less the
Three Months Ended | Nine Months Ended | ||||||||||||||||||||
(in thousands) | Ref | 2022 | 2021 | Change | 2022 | 2021 | Change | ||||||||||||||
Revenue | |||||||||||||||||||||
Total enterprise | $ | 66,440 | $ | 61,555 | $ | 4,885 | $ | 327,940 | $ | 180,913 | $ | 147,027 | |||||||||
Less: |
(a) | (5,116 | ) | — | (5,116 | ) | 125,773 | — | 125,773 | ||||||||||||
Remaining contract portfolio | (a) | $ | 71,556 | 61,555 | 10,001 | $ | 202,167 | $ | 180,913 | $ | 21,254 | ||||||||||
Operating income | |||||||||||||||||||||
Total enterprise | $ | 7,114 | $ | 4,939 | $ | 2,175 | $ | 28,588 | $ | 13,194 | $ | 15,394 | |||||||||
Less: |
(b) | 608 | $ | — | $ | 608 | 12,479 | — | 12,479 | ||||||||||||
Remaining contract portfolio | (b) | $ | 6,506 | $ | 4,939 | $ | 1,567 | $ | 16,109 | $ | 13,194 | $ | 2,915 | ||||||||
Net income | |||||||||||||||||||||
Total enterprise | $ | 4,864 | $ | 2,880 | $ | 1,984 | $ | 19,846 | $ | 7,261 | $ | 12,585 | |||||||||
Less: |
(c) | 450 | — | 450 | 9,235 | — | 9,235 | ||||||||||||||
Remaining contract portfolio | (c) | $ | 4,414 | $ | 2,880 | $ | 1,534 | $ | 10,611 | $ | 7,261 | $ | 3,350 | ||||||||
Diluted earnings per share | |||||||||||||||||||||
Total enterprise | $ | 0.34 | $ | 0.21 | $ | 0.13 | $ | 1.40 | $ | 0.54 | $ | 0.86 | |||||||||
Less: |
(d) | 0.03 | — | 0.03 | 0.64 | — | 0.64 | ||||||||||||||
Remaining contract portfolio | (d) | $ | 0.31 | $ | 0.21 | $ | 0.10 | $ | 0.76 | $ | 0.54 | $ | 0.22 | ||||||||
EBITDA | |||||||||||||||||||||
Total enterprise | $ | 8,987 | $ | 6,953 | $ | 2,034 | $ | 34,328 | $ | 19,299 | $ | 15,029 | |||||||||
Less: |
(e) | 608 | — | 608 | 12,479 | — | 12,479 | ||||||||||||||
Remaining contract portfolio | (e) | $ | 8,379 | $ | 6,953 | $ | 1,426 | $ | 21,849 | $ | 19,299 | $ | 2,550 | ||||||||
Ref (a): Revenue for the Company’s remaining contract portfolio less the
Ref (b): Operating income attributable to the remaining contract portfolio less the
Ref (c): Net income attributable to the remaining contract portfolio less the
Ref (d): Diluted earnings per share (diluted EPS) for the
Ref (e): EBITDA attributable to the
Source: DLH Holdings Corp.