DLH Reports Fiscal 2024 Second Quarter Results

May 1, 2024

Revenue Grows and Backlog Strengthens as Debt Reduction Continues

ATLANTA, May 01, 2024 (GLOBE NEWSWIRE) -- DLH Holdings Corp. (NASDAQ: DLHC) (“DLH” or the “Company”), a leading provider of science research and development, systems engineering and integration, and digital transformation and cyber security solutions to federal agencies, today announced financial results for its fiscal second quarter ended March 31, 2024.

Second Quarter Highlights

  • Second quarter revenue was $101.0 million in fiscal 2024 versus $99.4 million in fiscal 2023
  • Earnings were $1.8 million, or $0.12 per diluted share, for the second quarter of fiscal 2024 versus $0.8 million, or $0.06 per diluted share, for the second quarter of fiscal 2023
  • Earnings before interest, taxes, depreciation and amortization ("EBITDA") were $10.2 million for the second quarter of fiscal 2024 as compared to $10.5 million for the second quarter of fiscal 2023.
  • Total debt was $170.8 million as of March 31, 2024 versus $174.4 million as of December 31, 2023
  • Contract backlog was $736.2 million as of March 31, 2024 versus $653.5 million as of December 31, 2023.

Management Discussion
"I am very pleased to announce that, with the Continuing Resolution behind us and decision-making in Washington getting back on track, we posted both revenue and backlog growth during the quarter — positioning us well for the remainder of fiscal 2024," said Zach Parker, DLH President and Chief Executive Officer. "Revenue rose to $101.0 million, up slightly year-over-year, and our backlog climbed more than $80 million sequentially from the end of the first quarter, to $736.2 million. Our bottom line also improved over fiscal 2023 results, reflecting the positive impact of focusing cash flow on de-levering our balance sheet. We were proud to announce renewal contract awards with the National Cancer Institute and the National Institute on Drug Abuse as we were selected to continue supporting their critical missions and potentially increase our presence at each institute through significant contract provisions for optional IT services. Over the past quarter we saw momentum building in government decision making and, with an active pipeline of opportunities, we expect to deliver further backlog gains and top line growth going forward. This should position us well for fiscal 2025 and beyond, while our ongoing debt reduction strategy continues to enhance underlying performance and shareholder value.

“With respect to the VA CMOP program, as reported during the quarter, the VA issued notices of intent to award short term contracts for each of the CMOP locations. They subsequently cancelled those notices and issued us a new contract to provide services while the procurements for new five-year contracts are evaluated and awarded. The contract has a ceiling value of $200 million, with initial tasking through July 31, 2024.”

Results for the Three Months Ended March 31, 2024
Revenue for the second quarter of fiscal 2024 was $101.0 million versus $99.4 million in fiscal 2023, reflecting growth across the Company's programs, particularly in public health and IT services offset in part by national security contracts converting to small business set-aside companies.

Income from operations was $5.9 million versus $6.0 million in the fiscal 2023 second quarter and, as a percentage of revenue, the Company reported operating margin of 5.9% in fiscal 2024 second quarter versus 6.0% in the prior-year period. For the quarter, general and administrative costs increased as a percentage of revenue to 11.6% from 10.8%, primarily due to an increase in legal costs associated with customer procurements and strategic corporate planning costs.

Interest expense was $4.2 million in the fiscal second quarter of 2024 versus $4.8 million in the prior-year period, reflecting lower debt outstanding due to the Company's use of cash flow generation to de-lever the balance sheet. Income before income taxes was $1.8 million for the second quarter this year versus $1.2 million in fiscal 2023, representing 1.7% and 1.2% of revenue, respectively, for each period.

For the three months ended March 31, 2024 and 2023, DLH recorded a $(0.1) million and $0.4 million provision for income tax expense, respectively, with the lower tax in fiscal 2024 reflecting the beneficial impact of stock based compensation expense as options are exercised. The Company reported net income of approximately $1.8 million, or $0.12 per diluted share, for the second quarter of fiscal 2024 versus $0.8 million, or $0.06 per diluted share, for the second quarter of fiscal 2023. As a percentage of revenue for the second quarters of fiscal 2024 and 2023, net income was 1.8% and 0.8%, respectively.

On a non-GAAP basis, EBITDA for the three months ended March 31, 2024 was approximately $10.2 million versus $10.5 million in the prior-year period, or 10.1% and 10.5% of revenue, respectively.

Key Financial Indicators
During the second quarter of fiscal 2024, DLH generated $5.2 million in operating cash. As of March 31, 2024 the Company had cash of $0.2 million and debt outstanding under its credit facilities of $170.8 million versus cash of $0.2 million and debt outstanding of $179.4 million as of September 30, 2023. The debt reduction of $3.6 million was all voluntary prepayments applied to floating rate debt. The Company expects to reduce its total debt balance to between $157.0 million and $153.0 million by the end of fiscal 2024.

As of March 31, 2024 total backlog was approximately $736.2 million, including funded backlog of approximately $106.9 million and unfunded backlog of $629.3 million.

Conference Call and Webcast Details
DLH management will discuss second quarter results and provide a general business update, including current competitive conditions and strategies, during a conference call beginning at 10:00 AM Eastern Time tomorrow, May 2, 2024. Interested parties may listen to the conference call by dialing 888-347-5290 or 412-317-5256.   Presentation materials will also be posted on the Investor Relations section of the DLH website prior to the commencement of the conference call.     

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 2520402.

About DLH

DLH (NASDAQ: DLHC) enhances technology, public health, and cyber security readiness missions through science, technology, cyber, and engineering solutions and services. Our experts solve some of the most complex and critical missions faced by federal customers, leveraging digital transformation, artificial intelligence, advanced analytics, cloud-based applications, telehealth systems, and more. With over 3,000 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 innovative solutions 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 risk that we will not realize the anticipated benefits of acquisitions (including anticipated future financial performance and results); the diversion of management’s attention from normal daily operations of the business and the challenges of managing larger and more widespread operations; the inability to retain employees and customers; contract awards in connection with re-competes for present business and/or competition for new business; our ability to manage our debt obligations; compliance with 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 impact of inflation and higher interest rates; and other risks described in our SEC filings. For a discussion of such risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements, see “Risk Factors” in the Company’s periodic reports filed with the SEC, including our Annual Report on Form 10-K for the fiscal year ended September 30, 2023, as well as subsequent reports filed thereafter. The forward-looking statements contained herein are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about our industry and business.

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.


Contact: Chris Witty
Phone: 646-438-9385
Email: cwitty@darrowir.com

(Amounts in thousands except per share amounts)
 Three Months Ended Six Months Ended
 March 31, March 31,
 2024 2023
 2024 2023
Revenue$101,007  $99,417  $198,857  $172,155 
Cost of operations:       
Contract costs 79,112   78,238   158,193   135,494 
General and administrative costs 11,710   10,693   19,407   18,117 
Corporate development costs          1,735 
Depreciation and amortization 4,243   4,535   8,496   6,937 
Total operating costs 95,065   93,466   186,096   162,283 
Income from operations 5,942   5,951   12,761   9,872 
Interest expense 4,190   4,765   8,848   6,595 
Income before provision for income taxes 1,752   1,186   3,913   3,277 
Provision for income tax (benefit) expense (60)  381   (50)  925 
Net income$1,812  $805  $3,963  $2,352 
Net income per share - basic$0.13  $0.06  $0.28  $0.17 
Net income per share - diluted$0.12  $0.06  $0.27  $0.16 
Weighted average common stock outstanding       
Basic 14,205   13,759   14,118   13,530 
Diluted 14,946   14,600   14,823   14,447 

(Amounts in thousands except par value of shares)
 March 31,
 September 30,
Current assets:   
Cash$238  $215 
Accounts receivable 55,457   59,119 
Other current assets 2,221   3,067 
Total current assets 57,916   62,401 
Goodwill 138,161   138,161 
Intangible assets, net 116,549   124,777 
Operating lease right-of-use assets 8,315   9,656 
Deferred taxes, net 3,028   3,070 
Equipment and improvements, net 1,787   1,590 
Other long-term assets 186   186 
Total assets$325,942  $339,841 
Current liabilities:   
Accounts payable and accrued liabilities$23,035  $29,704 
Debt obligations - current, net of deferred financing costs 17,178   17,188 
Accrued payroll 11,756   13,794 
Operating lease liabilities - current 3,242   3,463 
Other current liabilities 996   638 
Total current liabilities 56,207   64,787 
Long-term liabilities:   
Debt obligations - long-term, net of deferred financing costs 147,610   155,147 
Operating lease liabilities - long-term 14,242   15,908 
Other long-term liabilities 1,133   1,560 
Total long-term liabilities 162,985   172,615 
Total liabilities 219,192   237,402 
Shareholders' equity:   
Common stock, $0.001 par value; 40,000 shares authorized; 14,230 and 13,950 shares issued and outstanding at March 31, 2024 and September 30, 2023, respectively 14   14 
Additional paid-in capital 100,322   99,974 
Retained earnings 6,414   2,451 
Total shareholders’ equity 106,750   102,439 
Total liabilities and shareholders' equity$325,942  $339,841 

(Amounts in thousands)
 Six Months Ended
 March 31,
 2024 2023
Operating activities   
Net income$3,963  $2,352 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization 8,496   6,937 
Amortization of deferred financing costs charged to interest expense 1,040   904 
Stock-based compensation expense 1,573   1,352 
Deferred taxes, net 42    
Changes in operating assets and liabilities   
Accounts receivable 3,662   (1,057)
Other assets 2,187   719 
Accounts payable and accrued liabilities (6,669)  (4,757)
Accrued payroll (2,038)  8 
Other liabilities (1,955)  404 
Net cash provided by operating activities 10,301   6,862 
Investing activities   
Business acquisition, net of cash acquired    (180,711)
Purchase of equipment and improvements (466)  (463)
Net cash used in investing activities (466)  (181,174)
Financing activities   
Proceeds from revolving line of credit 161,555   32,594 
Repayment of revolving line of credit (157,079)  (11,264)
Proceeds from debt obligations    168,000 
Repayments of debt obligations (13,063)  (7,125)
Payments of deferred financing costs    (7,622)
Proceeds from issuance of common stock upon exercise of options and warrants 261   287 
Payment of tax obligations resulting from net exercise of stock options (1,486)  (649)
Net cash (used in) provided by financing activities (9,812)  174,221 
Net change in cash 23   (91)
Cash - beginning of year 215   228 
Cash - end of year$238  $137 
Supplemental disclosures of cash flow information   
Cash paid during the year for interest$7,873  $5,714 
Cash paid during the year for income taxes$1,798  $3,202 
Supplemental disclosures of non-cash activity   
Common stock surrendered for the exercise of stock options$2,324  $238 

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 income tax expense and (iii) depreciation and amortization. EBITDA as a percent of revenue is EBITDA for the measurement period divided by revenue for the same period.

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. EBITDA is not a recognized measurement under accounting principles generally accepted in the United States, or GAAP, and when analyzing our performance investors should (i) evaluate adjustments in our reconciliation to the nearest GAAP financial measures and (ii) use non-GAAP measures in addition to, and not as an alternative to, measures of our operating results as defined under GAAP.

Reconciliation of GAAP net income to EBITDA, a non-GAAP measure (in thousands):        

 Three Months Ended Six Months Ended
 March 31, March 31,
 2024 2023 Change 2024 2023 Change
Net income$1,812  $805  $1,007  $3,963  $2,352  $1,611 
(i) Interest expense, net 4,190   4,765   (575)  8,848   6,595   2,253 
(ii) Provision for income tax (benefit) expense (60)  381   (441)  (50)  925   (975)
(iii) Depreciation and amortization 4,243   4,535   (292)  8,496   6,937   1,559 
EBITDA$10,185  $10,486  $(301) $21,257  $16,809  $4,448 
Net income as a % of revenue 1.8%  0.8%  1.0%  2.0%  1.4%  0.6%
EBITDA as a % of revenue 10.1%  10.5% (0.4)        %  10.7%  9.8%  0.9%
Revenue$101,007  $99,417  $1,590  $198,857  $172,155  $26,702 

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