DLH Reports Fiscal 2022 Fourth Quarter Results (2023)

DLH Reports Fiscal 2022 Fourth Quarter Results (1)

Revenue of $67.2 Million for Quarter, $395.2Million for Fiscal Year; Debt Reduced to $22.0 Million

ATLANTA, Dec. 05, 2022 (GLOBE NEWSWIRE) -- 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 fourth quarter ended September30, 2022.

Highlights

  • Fourth quarter revenue increased to $67.2 million in fiscal 2022 from $65.2 million in fiscal 2021, reflecting growth of 3% year-over-year

  • For the full fiscal year, revenue rose to $395.2 million from $246.1 million, reflecting the previously announced short term FEMA contracts to support Alaska, which contributed $125.8 million to revenue in the fiscal year

  • Excluding these short-term contracts, revenue grew to $269.4 million, an increase of 10% over the prior year, reflecting volume growth on existing contracts

  • Earnings were $3.4 million, or $0.24 per diluted share, for the fiscal 2022 fourth quarter versus $2.9 million, or $0.21 per diluted share, for the fourth quarter of fiscal 2021

  • Earnings for the full year were $23.3 million, or $1.64 per diluted share for fiscal 2022 as compared to earnings for fiscal 2021 of $10.1 million, or $0.75 per diluted share.

  • Excluding the FEMA contracts, earnings on a non-GAAP basis for the full fiscal year were $14.1 million, or $0.99 per diluted share, versus $10.0 million, or $0.74 per diluted share, for fiscal 2021

  • The Company's secured term loan was reduced from $46.8 million to $22.0 million during the fiscal year

  • Contract backlog was $482.5 million as of September30, 2022 versus $651.5 million at the end of the prior fiscal year, with approximately $85 million of the latter related to the FEMA contracts

Management Discussion
“Fiscal 2022 was a year that, once again, demonstrated the strength of our people, the ability of our platform to deliver excellent results and the agility of the Company's advanced technological capabilities, driving us to record performance and positioning us well for the quarters to come," said DLH President and Chief Executive Officer Zach Parker. "We begin fiscal 2023 with a healthy backlog of $482.5 million representing our diverse programs across numerous agencies in the markets we serve. In addition, we further paid down debt, leaving the Company with a solid balance sheet and the financial flexibility to fund business growth initiatives and invest in our people. As we look towards the future, I’d like to thank our employees for a standout year as you continue to support critical efforts and programs that support our nation. Given the longstanding demand for our services, broad bipartisan support in Congress, and our innovative, data-driven solutions, we remain optimistic about the quarters to come.”

Results for the Three Months Ended September30, 2022
Revenue for the fourth quarter of fiscal 2022 was $67.2 million versus $65.2 million in the prior-year period. The 3% increase year-over-year reflects continued growth across the Company's existing contracts.

Income from operations was $4.7 million for the quarter versus $4.0 million in the prior-year period and, as a percent of revenue, the Company reported an operating margin of 7.0% in fiscal 2022 fourth quarter versus 6.2% in same period in fiscal 2021. Income from operations increased due to higher revenue and improved program mix, offset by investments in the human capital and business development functions and increased compliance costs.

Interest expense was $0.5 million in the fiscal fourth quarter of 2022 versus $0.8 million in the prior-year period, reflecting the decrease of debt outstanding. Income before provision for income taxes was $4.2 million this year versus $3.2 million in fiscal 2021, representing 6.3% and 5.0% of revenue, respectively, for each period.

For the three months ended September30, 2022 and 2021, respectively, DLH recorded a $0.8 million and $0.3 million provision for income taxes. The Company reported net income of approximately $3.4 million, or $0.24 per diluted share, for the fourth quarter of fiscal 2022 versus $2.9 million, or $0.21 per diluted share, for the fourth quarter of fiscal 2021. As a percent of revenue, net income was 5.1% for the fourth quarter of fiscal 2022 versus 4.4% for the prior year period.

On a non-GAAP basis, EBITDA for the three months ended September30, 2022 was approximately $6.6 million versus $6.0 million in the prior-year period, or 9.8% and 9.3% of revenue, respectively.

Key Financial Indicators
For the 2022 fiscal year, DLH produced $1.2 million in operating cash, reflecting the impact of the $22.3 million deferred revenue on the previously-completed FEMA contracts, for which there were advance payments in the fourth quarter of fiscal 2021. The overall increase in accounts receivable versus the prior-year period reflects normal fluctuations in the timing of customer payments and growth in the overall business volume.

As of September30, 2022, the Company had cash of $0.2 million and debt outstanding under its credit facilities of $22.0 million versus cash of $24.1 million and debt outstanding of $46.8 million as of September 30, 2021.

At September30, 2022, total backlog was approximately $482.5 million, including funded backlog of approximately $98.9 million, and unfunded backlog of $383.5 million.

Conference Call and Webcast Details
DLH management will discuss fourth 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 today, December 5, 2022. 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 3802471.

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 impact 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 ofacquisitions; 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 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 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, 2022, 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)

Three Months Ended

Twelve Months Ended

September 30,

September 30,

2022

2021

2022

2021

Revenue

$

67,233

$

65,182

$

395,173

$

246,094

Cost of Operations:

Contract costs

51,701

51,522

322,886

194,614

General and administrative costs

8,551

6,532

30,730

25,054

Corporate development costs

364

1,088

614

1,088

Depreciation and amortization

1,926

2,010

7,665

8,115

Total operating costs

62,542

61,152

361,895

228,871

Income from operations

4,691

4,030

33,278

17,223

Interest expense

477

808

2,215

3,784

Income before provision for income taxes

4,214

3,222

31,063

13,439

Provision for income taxes

772

339

7,775

3,294

Net income

$

3,442

$

2,883

$

23,288

$

10,145

Net income per share - basic

$

0.27

$

0.23

$

1.82

$

0.81

Net income per share - diluted

$

0.24

$

0.21

$

1.64

$

0.75

Weighted average common shares outstanding

Basic

12,980

12,607

12,830

12,549

Diluted

14,307

13,654

14,179

13,597

DLH HOLDINGS CORP.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except par value of shares)

September 30,
2022

September 30,
2021

ASSETS

Current assets:

Cash

$

228

$

24,051

Accounts receivable

40,496

33,447

Other current assets

2,878

4,265

Total current assets

43,602

61,763

Equipment and improvements, net

1,704

1,912

Operating lease right-of-use assets

16,851

19,919

Goodwill

65,643

65,643

Intangible assets, net

40,884

47,469

Other long-term assets

328

464

Total assets

$

169,012

$

197,170

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Operating lease liabilities - current

$

2,235

$

2,261

Accrued payroll

9,444

9,125

Deferred revenue

22,273

Accounts payable and accrued liabilities

26,862

32,717

Total current liabilities

38,541

66,376

Long-term liabilities:

Deferred taxes, net

1,534

1,176

Operating lease liabilities - long-term

16,461

19,374

Debt obligations - long-term, net of deferred financing costs

20,416

44,636

Total long-term liabilities

38,411

65,186

Total liabilities

76,952

131,562

Shareholders' equity:

Common stock, $0.001 par value; authorized 40,000 shares; issued and outstanding 13,047 and 12,714 at September30, 2022 and September30, 2021, respectively

13

13

Additional paid-in capital

91,057

87,893

Retained earnings (accumulated deficit)

990

(22,298

)

Total shareholders’ equity

92,060

65,608

Total liabilities and shareholders' equity

$

169,012

$

197,170

DLH HOLDINGS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)

Twelve Months Ended

September 30,

2022

2021

Operating activities

Net income

$

23,288

$

10,145

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

Depreciation and amortization

7,665

8,115

Amortization of deferred financing costs charged to interest expense

664

792

Stock-based compensation expense

2,608

1,660

Deferred taxes, net

358

1,213

Changes in operating assets and liabilities

Accounts receivable

(7,049

)

(906

)

Other current assets

1,387

(766

)

Accrued payroll

319

(1,486

)

Deferred revenue

(22,273

)

22,273

Accounts payable and accrued liabilities

(5,855

)

4,139

Other long-term assets and liabilities

131

486

Net cash provided by operating activities

1,243

45,665

Investing activities

Business acquisition adjustment

59

Purchase of equipment and improvements

(872

)

(103

)

Net cash used in investing activities

(872

)

(44

)

Financing activities

Proceeds from debt obligations

17,000

30,950

Repayments of debt obligations

(41,750

)

(54,200

)

Payments of deferred financing costs

(43

)

Proceeds from issuance of common stock upon exercise of options and warrants

837

366

Payment of tax obligations resulting from net exercise of stock options

(281

)

Net cash used in financing activities

(24,194

)

(22,927

)

Net change in cash

(23,823

)

22,694

Cash - beginning of period

24,051

1,357

Cash - end of period

$

228

$

24,051

Supplemental disclosure of cash flow information

Cash paid during the period for interest

$

1,528

$

2,941

Cash paid during the period for income taxes

$

9,282

$

936

Supplemental disclosure of non-cash activity

Common stock surrendered for the exercise of stock options

$

256

$

Cancellation of common stock

$

$

68

Revenue Metrics

Twelve Months Ended

September 30,

September 30,

2022

2021

Market Mix:

Human Services and Solutions

42

%

15

%

Defense and Veteran Health Solutions

40

%

57

%

Public Health/Life Sciences

18

%

28

%

Contract Mix:

Time and Materials

78

%

75

%

Cost Reimbursable

12

%

20

%

Firm Fixed Price

10

%

5

%

Prime vs Sub:

Prime

93

%

87

%

Subcontractor

7

%

13

%

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 FEMA task orders on its financial performance for the three and twelve months periods ended September30, 2022. The measures presented are revenue, operating income, net income, diluted earnings per share, and EBITDA for our enterprise contract portfolio less the respective performance on the FEMA task orders. These resulting measures present the remaining contract portfolio's quarterly financial performance compared to results delivered in the prior year period. Definitions of these additional non-GAAP measures are set forth in the footnotes to the reconciliation table below.

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.

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

Three Months Ended

Twelve Months Ended

September 30,

September 30,

2022

2021

Change

2022

2021

Change

Net income

$

3,442

$

2,883

$

559

$

23,288

$

10,145

$

13,143

(i) Interest expense

477

808

(331

)

2,215

3,784

(1,569

)

(ii) Provision for income taxes

772

339

433

7,775

3,294

4,481

(iii) Depreciation and amortization

1,926

2,010

(84

)

7,665

8,115

(450

)

EBITDA

$

6,617

$

6,040

$

577

$

40,943

$

25,338

$

15,605

Net income as a % of revenue

5.1

%

4.4

%

0.7

%

5.9

%

4.1

%

1.8

%

EBITDA as a % of revenue

9.8

%

9.3

%

0.5

%

10.4

%

10.3

%

0.1

%

Revenue

$

67,233

$

65,182

$

2,051

$

395,173

$

246,094

$

149,079

GAAP revenue, operating income, net income, diluted earnings per share, and non-GAAP EBITDA reported for the year ended September 30, 2022 to the same metrics for our contract portfolio less the FEMA task orders (in thousands):

Twelve Months Ended

September 30,

2022

2021

Change

Revenue (a)

Total enterprise

$

395,173

$

246,094

$

149,079

Less: FEMA task orders to support Alaska

125,773

1,727

124,046

Remaining contract portfolio

$

269,400

$

244,367

$

25,033

Operating income (b)

Total enterprise

$

33,278

$

17,223

$

16,055

Less: FEMA task orders to support Alaska

12,479

117

12,362

Remaining contract portfolio

$

20,799

$

17,106

$

3,693

Net income (c)

Total enterprise

$

23,288

$

10,145

$

13,143

Less: FEMA task orders to support Alaska

9,235

117

9,118

Remaining contract portfolio

$

14,053

$

10,028

$

4,025

Diluted earnings per share (d)

Total enterprise

$

1.64

$

0.75

$

0.89

Less: FEMA task orders to support Alaska

0.65

0.01

0.64

Remaining contract portfolio

$

0.99

$

0.74

$

0.25

EBITDA (e)

Total enterprise

$

40,943

$

25,338

$

15,605

Less: FEMA task orders to support Alaska

12,479

117

12,362

Remaining contract portfolio

$

28,464

$

25,221

$

3,243

(a): Revenue for the Company’s remaining contract portfolio less the FEMA task orders represents our consolidated revenues less the revenues generated from the FEMA task orders.

(b): Operating income attributable to the remaining contract portfolio less the FEMA task orders represents the Company’s consolidated operating income, determined in accordance with GAAP, less the operating income derived from the FEMA task orders. Similarly, for the year ended September 30, 2022 operating income for the FEMA task orders is derived by subtracting from the revenue attributable to the tasks orders of $125.8 million the following amounts associated with such task orders: contract costs $112.1 million and general & administrative costs of $1.2 million.

(c): Net income attributable to the remaining contract portfolio less the FEMA task orders represents the Company’s consolidated net income, determined in accordance with GAAP, less the net income derived from the FEMA task orders. For the year ended September 30, 2022 net income for the FEMA task orders is derived by subtracting from the revenue attributable to the tasks orders of $125.8 million the following amounts associated with such task orders: contract costs of $112.1 million, general & administrative costs of $1.2 million, and provision for income taxes of $3.2 million.

(d): Diluted earnings per share (diluted EPS) for the FEMA task orders is calculated using the net income attributable to such task orders as opposed to GAAP net income. Diluted EPS for the remaining contract portfolio (total contract portfolio excluding the FEMA task orders) is calculated by subtracting the diluted EPS for the FEMA task orders from the Company's total diluted EPS.

(e): EBITDA attributable to the FEMA task orders of $12.5 million for the year ended September 30, 2022, is arrived at through the same calculation as operating income as there are not any depreciation and amortization costs attributable to the FEMA task orders. EBITDA for the remaining contract portfolio is calculated by subtracting the EBITDA attributable to the FEMA task orders from the Company’s total EBITDA.

DLH Reports Fiscal 2022 Fourth Quarter Results (2)

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