DLH Investor Relations

DLH Reports Fiscal 2021 Third Quarter Results
Revenue of $61.6 Million; Operating Margins Hit 8.0%
Year-to-Date Operating Cash Flow of $15.4 Million

Atlanta, Georgia – August 4, 2021 - DLH Holdings Corp. (NASDAQ: DLHC) (“DLH” or the “Company”), a leading provider of innovative healthcare services and solutions to federal agencies, today announced financial results for its fiscal third quarter ended June 30, 2021. 

Highlights

  • Third quarter revenue increased to $61.6 million in fiscal 2021 from $51.5 million in fiscal 2020, reflecting the acquisition of Irving Burton Associates (“IBA”) and organic program growth
  • Operating margins rose to 8.0% in the current year third quarter from 7.4% in the prior-year period
  • Earnings were $2.9 million, or $0.21 per diluted share, for the fiscal 2021 third quarter versus $2.1 million, or $0.16 per diluted share, for the third quarter of fiscal 2020
  • The Company generated $15.4 million in operating cash through June 30, 2021, including $9.3 million in the fiscal third quarter, versus $10.7 million in the comparable prior-year nine-month period
  • The April 2021 contract award of the Consolidated Mail Outpatient Pharmacy ("CMOP") logistics recompete with U.S. Department of Veterans Affairs ("VA") was protested, and subsequently cancelled, in accordance with applicable requirements to address elements of the procurement process. As the review continues, the Company's existing contract was extended through November 2021 and may be extended further
  • Contract backlog was $566.2 million as of June 30, 2021

Management Discussion

“Fiscal 2021 continues to be one of achievement for DLH, as we once again grew the top line, increased margins, and improved overall operating performance in the third quarter,” said DLH President and Chief Executive Officer Zach Parker. “Revenue rose to $61.6 million and operating margins expanded to 8.0%, reflecting strong demand for our technology-enabled solutions across the core federal agencies we serve. At the same time, we generated $9.3 million of cash from operations in the quarter, allowing us to further pay down debt and de-lever the balance sheet. Our backlog remains robust, even as we await resolution on the previously-announced CMOP logistics recompete, for which we expect a favorable outcome. Overall, we anticipate ending fiscal 2021 with strong results against all key metrics, positioning us well for fiscal 2022 against a backdrop of increased healthcare spending, a focus on digitization and cloud computing, and enduring support for Veterans Affairs."

Results for the Three Months Ended June 30, 2021

Revenue for the third quarter of fiscal 2021 was $61.6 million versus $51.5 million in the prior-year period. The increase was due principally to the Company’s IBA acquisition, completed September 30, 2020, which added approximately $7.3 million in revenue, and increased work across other DLH programs.

Income from operations was $4.9 million for the quarter versus $3.8 million in the prior-year period and, as a percent of revenue, the Company reported an operating margin of 8.0% in fiscal 2021 versus 7.4% in fiscal 2020. The current year performance reflects increased revenue contribution from time and materials programs, which generally yield stronger returns than cost reimbursable contracts, and lower general and administrative ("G&A") expenses, partially offset by higher depreciation and amortization.

Interest expense in the quarter increased to $0.9 million, versus $0.8 million for the three months ended June 30, 2020, due to higher outstanding debt levels, reflecting the acquisition of IBA. Income before taxes was $4.0 million for the quarter versus $3.0 million in fiscal 2020, representing 6.5% and 5.8% of revenue, respectively, for each period.

For the three months ended June 30, 2021 and 2020, respectively, DLH recorded a $1.2 million and $0.9 million provision for tax expense. The Company reported net income of approximately $2.9 million, or $0.21 per diluted share, for the third quarter of fiscal 2021 versus $2.1 million, or $0.16 per diluted share, for the third quarter of fiscal 2020. As a percent of revenue, net income was 4.7% for the third quarter of fiscal 2021 versus 4.1% for the prior year period.

On a non-GAAP basis, EBITDA for the three months ended June 30, 2021 was approximately $7.0 million versus $5.5 million in the prior-year period, or 11.3% and 10.7% of revenue, respectively.

Key Financial Indicators

Fiscal year to date, DLH has generated $15.4 million in operating cash, and has paid down $16.2 million of its secured loan facility. We have satisfied mandatory principal amortization on the loan facility until March 31, 2023. The Company anticipates strong operating cash flow for the remainder of the fiscal year and intends to continue using cash to make debt prepayments when possible.

As of June 30, 2021, the Company had cash and cash equivalents of $0.7 million and debt outstanding under its credit facility of $53.8 million, versus cash of $1.4 million and debt outstanding of $70.0 million as of September 30, 2020.

At June 30, 2021, total backlog was approximately $566.2 million, including funded backlog of approximately $76.4 million, and unfunded backlog of $489.8 million.

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 10:00 AM Eastern Time Thursday, August 5, 2021. 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 10149431.

About DLH

DLH 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 2,200 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 our recent or any future acquisition; the challenges of managing larger and more widespread operations resulting from our recent acquisition; 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 our recent acquisition and of any future acquisitions; 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, 2020, 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.

CONTACTS:

INVESTOR RELATIONS

Contact: Chris Witty

Phone:  646-438-9385

Email:  cwitty@darrowir.com

TABLES TO FOLLOW

DLH HOLDINGS CORP.

CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands except per share amounts)

 

 

(unaudited)

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

June 30,

 

June 30,

 

 

2021

 

2020

 

2021

 

2020

Revenue

 

$

61,555 

 

 

$

51,459 

 

 

$

180,913 

 

 

$

158,495 

 

Cost of Operations:

 

 

 

 

 

 

 

 

Contract costs

 

48,365 

 

 

39,615 

 

 

143,092 

 

 

123,895 

 

General and administrative costs

 

6,237 

 

 

6,323 

 

 

18,522 

 

 

18,497 

 

Depreciation and amortization

 

2,014 

 

 

1,721 

 

 

6,105 

 

 

5,340 

 

Total operating costs

 

56,616 

 

 

47,659 

 

 

167,719 

 

 

147,732 

 

Income from operations

 

4,939 

 

 

3,800 

 

 

13,194 

 

 

10,763 

 

Interest expense, net

 

893 

 

 

813 

 

 

2,977 

 

 

2,659 

 

Income before income taxes

 

4,046 

 

 

2,987 

 

 

10,217 

 

 

8,104 

 

Income tax expense

 

1,166 

 

 

863 

 

 

2,956 

 

 

2,352 

 

Net income

 

$

2,880 

 

 

$

2,124 

 

 

$

7,261 

 

 

$

5,752 

 

 

 

 

 

 

 

 

 

 

Net income per share - basic

 

$

0.23 

 

 

$

0.17 

 

 

$

0.58 

 

 

$

0.47 

 

Net income per share - diluted

 

$

0.21 

 

 

$

0.16 

 

 

$

0.54 

 

 

$

0.44 

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

Basic

 

12,545 

 

 

12,354 

 

 

12,529 

 

 

12,246 

 

Diluted

 

13,655 

 

 

13,228 

 

 

13,568 

 

 

13,050 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DLH HOLDINGS CORP.

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands except par value of shares)

 

 

June 30,
2021

 

September 30,
2020

 

 

(unaudited)

 

 

ASSETS

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

739 

 

 

$

1,357 

 

Accounts receivable

 

36,409 

 

 

32,541 

 

Other current assets

 

3,632 

 

 

3,499 

 

Total current assets

 

40,780 

 

 

37,397 

 

Equipment and improvements, net

 

2,226 

 

 

3,339 

 

Operating lease right-of-use assets

 

20,481 

 

 

22,427 

 

Deferred taxes, net

 

— 

 

 

37 

 

Goodwill

 

65,643 

 

 

67,144 

 

Intangible assets, net

 

49,115 

 

 

52,612 

 

Other long-term assets

 

506 

 

 

606 

 

Total assets

 

$

178,751 

 

 

$

183,562 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

Debt obligations - current, net of deferred financing costs

 

$

— 

 

 

$

6,727 

 

Operating lease liabilities - current

 

2,186 

 

 

2,045 

 

Accrued payroll

 

10,208 

 

 

10,611 

 

Accounts payable, accrued expenses, and other current liabilities

 

32,630 

 

 

28,578 

 

Total current liabilities

 

45,024 

 

 

47,961 

 

Long-term liabilities:

 

 

 

 

Debt obligations - long term, net of deferred financing costs

 

51,537 

 

 

60,544 

 

Operating lease liabilities - long-term

 

19,944 

 

 

21,620 

 

Total long-term liabilities

 

71,481 

 

 

82,164 

 

Total liabilities

 

116,505 

 

 

130,125 

 

Shareholders' equity:

 

 

 

 

Common stock, $0.001 par value; authorized 40,000 shares; issued and outstanding 12,545 and 12,404 at June 30, 2021 and September 30, 2020, respectively

 

13 

 

 

12 

 

Additional paid-in capital

 

87,415 

 

 

85,868 

 

Accumulated deficit

 

(25,182)

 

 

(32,443)

 

Total shareholders’ equity

 

62,246 

 

 

53,437 

 

Total liabilities and shareholders' equity

 

$

178,751 

 

 

$

183,562 

 

 

 

 

 DLH HOLDINGS CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

 

 

Nine Months Ended

 

 

June 30,

 

 

2021

 

2020

 

 

(unaudited)

 

 

Operating activities

 

 

 

 

Net income

 

$

7,261 

 

 

$

5,752 

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

Depreciation and amortization

 

6,105 

 

 

5,340 

 

Amortization of deferred financing costs

 

610 

 

 

551 

 

Stock based compensation expense

 

1,317 

 

 

566 

 

Deferred taxes, net

 

2,177 

 

 

1,987 

 

Gain from lease modification

 

— 

 

 

(121)

 

Changes in operating assets and liabilities

 

 

 

 

Accounts receivable

 

(3,868)

 

 

(6,409)

 

Other current assets

 

(133)

 

 

(1,941)

 

Accrued payroll

 

(403)

 

 

636 

 

Accounts payable, accrued expenses, and other current liabilities

 

1,912 

 

 

3,620 

 

Other long-term assets/liabilities

 

410 

 

 

726 

 

Net cash provided by operating activities

 

15,388 

 

 

10,707 

 

 

 

 

 

 

Investing activities

 

 

 

 

Business acquisition adjustment, net of cash acquired

 

59 

 

 

— 

 

Purchase of equipment and improvements

 

(53)

 

 

(152)

 

Net cash provided by (used in) investing activities

 

 

 

(152)

 

Financing activities

 

 

 

 

Repayment of secured term loan

 

(16,200)

 

 

(11,500)

 

Payment of deferred financing costs

 

(43)

 

 

(3)

 

Repurchased shares of common stock

 

— 

 

 

(211)

 

Proceeds from issuance of common stock upon exercise of options

 

231 

 

 

27 

 

Net cash used in financing activities

 

(16,012)

 

 

(11,687)

 

 

 

 

 

 

Net change in cash and cash equivalents

 

(618)

 

 

(1,132)

 

Cash and cash equivalents at beginning of year

 

1,357 

 

 

1,790 

 

Cash and cash equivalents at end of year

 

$

739 

 

 

$

658 

 

 

 

 

 

 

Supplemental disclosures of cash flow information

 

 

 

 

Cash paid during the period for interest

 

$

2,321 

 

 

$

2207 

 

Cash paid during the period for income taxes

 

$

396 

 

 

$

432 

 

Supplemental disclosures of non-cash activity

 

 

 

 

Non-cash cancellation of common stock

 

$

— 

 

 

$

211 

 

 

 

Revenue Metrics

 

 

Nine Months Ended

 

 

June 30,

 

June 30,

 

 

2021

 

2020

Market Mix:

 

 

 

 

Defense/VA

 

58 

%

 

48 

%

Human Services and Solutions

 

15 

%

 

20 

%

Public Health/Life Sciences

 

27 

%

 

32 

%

 

 

 

 

 

Contract Mix:

 

 

 

 

Time and Materials

 

76 

%

 

70 

%

Cost Reimbursable

 

20 

%

 

28 

%

Firm Fixed Price

 

%

 

%

 

 

 

 

 

Prime vs Sub:

 

 

 

 

Prime

 

88 

%

 

93 

%

Subcontractor

 

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.

 

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

 

 

June 30,

 

June 30,

(Amounts in Thousands)

 

2021

 

2020

 

Change

 

2021

 

2020

 

Change

Net income

 

$

2,880

 

$

2,124

 

$

756

 

$

7,261

 

$

5,752

 

$

1,509

(i) Interest expense, net

 

893

 

813

 

80

 

2,977

 

2,659

 

318

(ii) Provision for taxes

 

1,166

 

863

 

303

 

2,956

 

2,352

 

604

(iii) Depreciation and amortization

 

2,014

 

1,721

 

293

 

6,105

 

5,340

 

765

EBITDA

 

$

6,953

 

$

5,521

 

$

1,432

 

$

19,299

 

$

16,103

 

$

3,196

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income as a % of revenue

 

4.7 

%

 

3.7 

%

 

1.0 

%

 

4.0 

%

 

3.6%

 

0.4%

EBITDA as a % of revenue

 

11.3 

%

 

10.7 

%

 

0.6 

%

 

10.7 

%

 

10.2%

 

0.5%

Revenue

 

$

61,555

 

$

51,459

 

$

10,096

 

$

180,913

 

$

158,495

 

$

22,418