DLH Holdings Corp. (NASDAQ:DLHC) Q2 2021 Earnings Conference Call May 6, 2021 11:00 AM ET Company Participants Chris Witty - Investor Relations Advisor Zach Parker - President & Chief Executive Officer Kathryn JohnBull - Chief Financial Officer Conference Call Participants Brian Kinstlinger - Alliance Global Partners Chris Bliska - NOBLE Financial Operator Good day and welcome to the DLH Holdings Fiscal 2021 Second Quarter Earnings Call. All participants will be in a listen-only mode. [Operator Instructions ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2021 o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 0-18492 DLH HOLDINGS CORP. | --- | --- | |-------------------------------------------------------------------------------------------------------|--- ...

Financial Performance - The company reported revenue of $57.9 million for Q1 2021, an increase from $52.2 million in the prior year, reflecting a $7 million contribution from the IBA acquisition [21][22] - Operating income was $3.6 million with operating margins improving to 6.3% from 6% in the previous year [23] - Net income was approximately $1.8 million or $0.13 per diluted share, compared to $1.6 million or $0.12 per share last year [24] - EBITDA for Q1 2021 was $5.7 million, representing 9.8% of sales, up from 9.5% in the prior year [25] Business Lines and Market Data - The company experienced stable revenue delivery from labor year-over-year, with expectations for organic growth due to expansions in current programs and new business wins [22] - Approximately 60% of sales in the quarter were derived from Defense and VA markets, with significant contributions from the IBA acquisition [53] - The backlog at the end of the quarter was $665 million, indicating strong revenue visibility [10] Strategic Outlook and Industry Competition - The company anticipates greater opportunities for growth due to the new administration's focus on healthcare technology improvements, particularly in defense and health agencies [13][14] - The company is integrating acquisitions and enhancing service offerings to differentiate itself in the market [14] - There is an increased focus on digital transformation and artificial intelligence within federal agencies, which is expected to drive bidding activity [16] Management Commentary on Operating Environment and Future Prospects - Management expressed optimism about the year ahead, citing a strong proposal environment and active bidding activity [10][19] - The company is addressing pandemic-related challenges by leveraging technology to continue compliance programs with reduced travel [32] - Management expects to return to normal cash flow in Q2 2021, following a backlog in collections during Q1 [47] Other Important Information - The company has a debt position of $77.4 million, up from $70 million at the start of the fiscal year, primarily due to the IBA acquisition [26] - Management expects to achieve debt levels between $50 million and $52 million by the end of fiscal 2021 [50] Q&A Session Summary Question: Impact of compliance program restrictions on revenue - Management indicated that over 90% of compliance-related revenue reductions were due to onsite visit restrictions, but they are working on alternative methodologies to recover some of that revenue [30][32] Question: Opportunities related to pandemic response - Management highlighted a significant increase in bid activity related to public health and life sciences, with a focus on vaccine rollout and telehealth applications [38][40] Question: Transition in key contract payment offices - Management explained that the transition was impacted by the start of the new fiscal year and the continuing resolution, which caused delays in collections [43][46] Question: Expectations for deleveraging and cash flow - Management expects a strong Q2 in terms of cash delivery, with a historical trend of increasing cash flow through the fiscal year [50][47] Question: Growth in Defense and VA markets - Management noted that the contribution from core VA programs grew from 46% to 48% of revenue, indicating strong growth in that segment [57][59]

[Part I — Financial Information](index=3&type=section&id=Part%20I%20%E2%80%94%20Financial%20Information) This section presents the company's unaudited consolidated financial statements and management's discussion and analysis for the three months ended December 31, 2020 [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for the three months ended December 31, 2020, including the Statements of Operations, Balance Sheets, Statements of Cash Flows, Statements of Shareholders' Equity, and detailed Notes [Consolidated Statements of Operations](index=3&type=section&id=Consolidated%20Statements%20of%20Operations) The company reported revenue of **$57.9 million** and net income of **$1.8 million** for the three months ended December 31, 2020, with diluted earnings per share rising to **$0.13** Consolidated Statements of Operations (Unaudited) | Financial Metric | Three Months Ended Dec 31, 2020 (in thousands) | Three Months Ended Dec 31, 2019 (in thousands) | | :--- | :--- | :--- | | **Revenue** | **$57,852** | **$52,238** | | Income from operations | $3,635 | $3,126 | | **Net income** | **$1,814** | **$1,551** | | Net income per share - basic | $0.15 | $0.13 | | **Net income per share - diluted** | **$0.13** | **$0.12** | [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) As of December 31, 2020, total assets increased to **$191.9 million** from **$183.6 million**, primarily driven by an increase in accounts receivable, while total liabilities reached **$135.9 million** and shareholders' equity grew to **$55.9 million** Consolidated Balance Sheet Highlights (Unaudited) | Account | Dec 31, 2020 (in thousands) | Sep 30, 2020 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $370 | $1,357 | | Accounts receivable | $44,885 | $32,541 | | **Total assets** | **$191,866** | **$183,562** | | Total current liabilities | $55,402 | $47,961 | | **Total liabilities** | **$135,931** | **$130,125** | | **Total shareholders' equity** | **$55,935** | **$53,437** | [Consolidated Statements of Cash Flows](index=5&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the three months ended December 31, 2020, the company reported a net cash outflow of **$8.5 million** from operating activities, offset by **$7.6 million** in cash provided by financing activities, resulting in a net decrease in cash of **$1.0 million** Consolidated Cash Flow Summary (Unaudited) | Cash Flow Activity | Three Months Ended Dec 31, 2020 (in thousands) | Three Months Ended Dec 31, 2019 (in thousands) | | :--- | :--- | :--- | | Net cash (used in) operating activities | $(8,518) | $(2,884) | | Net cash (used in) investing activities | $(53) | $(162) | | Net cash provided by financing activities | $7,584 | $1,618 | | **Net change in cash and cash equivalents** | **$(987)** | **$(1,428)** | [Consolidated Statements of Shareholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Shareholders%27%20Equity) Total shareholders' equity increased from **$53.4 million** to **$55.9 million** during the quarter, primarily driven by **$1.8 million** in net income and stock-based compensation expense - Shareholders' equity increased by approximately **$2.5 million** during the quarter, primarily due to **$1.8 million** in net income and stock-based compensation expenses[17](index=17&type=chunk) [Notes to Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed information on the company's accounting policies and financial statement components, including revenue sources, major customers, lease obligations, debt facilities, and stock-based compensation plans - The company derives **99%** of its revenue from U.S. Federal government agencies[23](index=23&type=chunk) - The Department of Veteran Affairs (VA) and the Department of Health and Human Services (HHS) are the two largest customers, comprising **48%** and **35%** of revenue, respectively, for the three months ended December 31, 2020[24](index=24&type=chunk) Debt Obligations as of Dec 31, 2020 (in thousands) | Debt Instrument | Balance | | :--- | :--- | | Bank revolving line of credit | $9,150 | | Bank term loan | $68,250 | | **Net bank debt obligations** | **$74,807** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management provides an analysis of the company's financial performance and condition, highlighting a **10.7%** year-over-year revenue growth driven by the IBA acquisition, and discussing operational results, liquidity, and forward-looking trends [Business and Markets Overview](index=21&type=section&id=Business%20and%20Markets%20Overview) DLH provides technology-enabled solutions to federal health and human service agencies, with **99%** of revenue from the U.S. government, operating in Defense and Veteran Health, Human Services, and Public Health and Life Sciences market areas - The company's business offerings are aligned to three market focus areas: Defense and Veteran Health Solutions, Human Services and Solutions, and Public Health and Life Sciences[107](index=107&type=chunk) - The acquisition of Irving Burton Associates, LLC ("IBA") on September 30, 2020, is a key component of the company's recent performance and strategy[106](index=106&type=chunk) [Major Customers and Contracts](index=23&type=section&id=Major%20Customers%20and%20Contracts) The Department of Veterans Affairs (VA) and the Department of Health and Human Services (HHS) remain the company's largest customers, contributing **48%** and **35%** of revenue, respectively, with several key VA contracts operating under extensions Revenue by Major Customer (Q1 FY21 vs Q1 FY20) | Customer | Q1 FY21 Revenue % | Q1 FY20 Revenue % | | :--- | :--- | :--- | | Department of Veterans Affairs | 48% | 46% | | Department of Health and Human Services | 35% | 46% | | Department of Defense | 12% | 1% | - Nine VA pharmacy services contracts are operating under extensions through October 2021 after a previous RFP was canceled, with the government's future procurement strategy yet to be announced[112](index=112&type=chunk)[113](index=113&type=chunk) - Seven VA logistics contracts have been extended through June 2021, and a renewal RFP has been issued as a full and open acquisition, allowing DLH to bid as the prime contractor[114](index=114&type=chunk) [Backlog](index=24&type=section&id=Backlog) As of December 31, 2020, the company's total backlog was approximately **$665.2 million**, consisting of **$103.9 million** in funded orders and **$561.3 million** in unfunded amounts Backlog Summary | Backlog Category | As of Dec 31, 2020 (in millions) | As of Sep 30, 2020 (in millions) | | :--- | :--- | :--- | | **Total Backlog** | **$665.2** | **$688.4** | | Funded Backlog | $103.9 | N/A | | Unfunded Backlog | $561.3 | N/A | [Results of Operations](index=25&type=section&id=Results%20of%20Operations) For the first quarter of fiscal 2021, revenue increased by **10.7%** to **$57.9 million**, primarily due to the IBA acquisition, with income from operations growing to **$3.6 million** and non-GAAP EBITDA increasing to **$5.7 million** - Revenue for the three months ended December 31, 2020, increased by **$5.6 million (10.7%)** year-over-year, primarily due to the acquisition of IBA, which generated **$7.0 million** of revenue[133](index=133&type=chunk) Reconciliation of GAAP Net Income to EBITDA (non-GAAP) | Metric (in thousands) | Three Months Ended Dec 31, 2020 | Three Months Ended Dec 31, 2019 | | :--- | :--- | :--- | | Net income | $1,814 | $1,551 | | Interest expense, net | $1,080 | $941 | | Provision for taxes | $741 | $634 | | Depreciation and amortization | $2,062 | $1,859 | | **EBITDA** | **$5,697** | **$4,985** | [Liquidity and capital management](index=27&type=section&id=Liquidity%20and%20capital%20management) The company's primary liquidity sources are cash from operations and its **$25 million** revolving credit facility, with **$9.2 million** outstanding and **$25.0 million** available borrowing capacity as of December 31, 2020 - As of December 31, 2020, the company had **$25.0 million** of available borrowing capacity on its revolving line of credit and a balance outstanding of **$9.2 million**[144](index=144&type=chunk) - The company used **$8.5 million** in cash from operations during the quarter, which management attributes to short-term impacts from the continuing resolution for the federal budget and transitions in contract payment offices[146](index=146&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=29&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's main market risk exposure is to interest rate fluctuations on its variable-rate debt, partially mitigated by a floating-to-fixed interest rate swap on a notional amount of **$28.8 million** - The company utilizes a floating-to-fixed interest rate swap with a notional amount of **$28.8 million** to manage interest rate risk, where a **1.0%** increase in the LIBOR rate would impact annual interest expense by less than **$0.4 million**[174](index=174&type=chunk) [Item 4. Controls and Procedures](index=29&type=section&id=Item%204.%20Controls%20and%20Procedures) As of December 31, 2020, the company's CEO and CFO concluded that its disclosure controls and procedures were effective, with no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered by this report[175](index=175&type=chunk) - No changes in internal control over financial reporting occurred during the fiscal quarter that materially affected, or are reasonably likely to materially affect, these controls[180](index=180&type=chunk) [Part II — Other Information](index=30&type=section&id=Part%20II%20%E2%80%94%20Other%20Information) This section covers legal proceedings, risk factors, and exhibits filed with the report [Item 1. Legal Proceedings](index=30&type=section&id=Item%201.%20Legal%20Proceedings) The company is not aware of any pending or threatened litigation that is reasonably likely to have a material adverse effect on its results of operations, financial position, or cash flows - The Company is not aware of any pending or threatened litigation that it believes is reasonably likely to have a material adverse effect on its business[181](index=181&type=chunk) [Item 1A. Risk Factors](index=30&type=section&id=Item%201A.%20Risk%20Factors) The company states that there have been no material changes from the risk factors previously disclosed in its Annual Report on Form 10-K for the fiscal year ended September 30, 2020 - There have been no material changes from the risk factors described in the company's Annual Report on Form 10-K for the fiscal year ended September 30, 2020[182](index=182&type=chunk) [Item 6. Exhibits](index=31&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and financial data formatted in iXBRL - The exhibits filed with the report include certifications from the CEO and CFO pursuant to SEC regulations and financial statements formatted in iXBRL[186](index=186&type=chunk)

Financial Performance and Key Metrics - The company reported revenue of $50.7 million for Q4 2020 and $209.2 million for the fiscal year, representing a year-over-year increase of over 30% [10][11] - Operating income for the year was $13.5 million, with earnings of $0.54 per share, and EBITDA rose to $20.5 million from $13.9 million the previous year [11] - Cash generated from operations was $19.5 million, which was used to pay down $19 million of debt prior to the acquisition of Irving Burton Associates [12][31] Business Line Performance - Revenue for the Health and Human Services segment was down approximately 14% year-over-year, while the VA logistics segment experienced significant growth [28][40] - The company anticipates organic revenue growth in fiscal 2021 due to new COVID-19 contracts and task order timing [27] Market Data and Key Metrics - The company has a record backlog of nearly $700 million, which is expected to provide a strong foundation for future growth [13][30] - The backlog grew over 66% in fiscal 2020, driven by recent acquisitions and organic growth from recompete contracts [30] Company Strategy and Industry Competition - The company is focused on expanding its capabilities in data analytics, artificial intelligence, and secure systems, positioning itself as a leader in healthcare-related technology solutions [25][26] - The management believes that healthcare-related spending will be prioritized under the new administration, leading to greater opportunities for growth [16][17] Management Commentary on Operating Environment and Future Outlook - Management expressed cautious optimism regarding the ongoing pandemic and its impact on business, noting that the company is well-positioned to assist the government in addressing COVID-19 challenges [18][19] - The company expects to see a rebound in business as restrictions are lifted, although it anticipates some delays in new work due to the continuing resolution [42][44] Other Important Information - The company completed the acquisition of Irving Burton Associates for $32 million, enhancing its health IT solutions and credentials [11] - The integration of IBA is progressing well, with no major issues reported [52] Q&A Session Summary Question: What was the impact of pass-through revenues and delays on the top line? - The impact was estimated at $7 million to $8 million for the quarter and full year [34][35] Question: Can you break out the revenue growth in VA and Health and Human Services? - Revenue in the VA segment grew significantly, while Health and Human Services was down about 14% [38][40] Question: How is the integration of Irving Burton going? - The integration is going well, with no major issues and excitement about new business opportunities [49][52] Question: What is the status of accounts receivable? - Accounts receivable increased due to the acquisition and a transition in the dispersing office, but day sales outstanding remains below 60 [46][47] Question: What is the outlook for the Infinibyte Cloud product? - The product is in the implementation phase with existing customers, and there are significant opportunities anticipated in the near future [55][56]

Part I [Business](index=3&type=section&id=Item%201.%20Business) DLH Holdings Corp. provides technology-enabled services primarily to U.S. federal health and human service agencies, with 98% federal revenue - The company derives **98%** of its revenue from U.S. Federal government agencies, with the Department of Veteran Affairs (VA), Department of Health and Human Services (HHS), and the Department of Defense (DoD) being key clients[14](index=14&type=chunk) Revenue by Market (FY2020 vs. FY2019) | Market Focus Area | FY2020 Revenue (in thousands) | FY2020 Percent of Total | FY2019 Revenue (in thousands) | FY2019 Percent of Total | | :--- | :--- | :--- | :--- | :--- | | Defense/VA | $101,656 | 49% | $93,412 | 58% | | Human Services and Solutions | $40,962 | 20% | $40,679 | 25% | | Public Health/Life Sciences | $66,567 | 31% | $26,300 | 17% | | **Total Revenue** | **$209,185** | **100%** | **$160,391** | **100%** | Revenue by Major Customer (FY2020 vs. FY2019) | Customer | FY2020 Revenue (in thousands) | FY2020 Percent of Total | FY2019 Revenue (in thousands) | FY2019 Percent of Total | | :--- | :--- | :--- | :--- | :--- | | Department of Veterans Affairs | $100,204 | 48% | $91,949 | 57% | | Department of Health and Human Services | $95,026 | 45% | $62,000 | 39% | | Other Customers (<10%) | $13,955 | 7% | $6,442 | 4% | | **Total Revenue** | **$209,185** | **100%** | **$160,391** | **100%** | - On September 30, 2020, the company acquired Irving Burton Associates, LLC (IBA) to expand its services in artificial intelligence, IT modernization, and program management, particularly within the Defense Health Agency (DHA) and U.S. Army Medical Research and Development Command (MRDC)[23](index=23&type=chunk) - Total contract backlog increased to approximately **$688.4 million** at September 30, 2020, from **$414.1 million** at September 30, 2019. The 2020 backlog consists of **$121.3 million** funded and **$567.1 million** unfunded[35](index=35&type=chunk)[36](index=36&type=chunk) - The company's revenue is primarily from time and materials contracts (**70%**), followed by cost-reimbursable contracts (**28%**) and firm-fixed-price contracts (**2%**). It holds a prime contractor position on contracts representing **92%** of its revenue[27](index=27&type=chunk)[28](index=28&type=chunk) [Risk Factors](index=9&type=section&id=Item%201A.%20Risk%20Factors) The company faces substantial risks from its high dependence on federal government contracts, acquisitions, debt, and concentrated ownership - **Business & Industry Risks:** The company derives **98%** of its revenue from federal government contracts and is highly dependent on its relationship with the VA and HHS. Risks include government budget changes, contract termination for convenience, competition, and the U.S. government's preference for small or veteran-owned businesses, which could limit prime contracting opportunities[52](index=52&type=chunk)[53](index=53&type=chunk)[57](index=57&type=chunk) - **COVID-19 Risk:** The pandemic poses risks of economic disruption, potential delays in government decision-making, and reduced demand for services if government spending priorities shift. Increased remote work also elevates cybersecurity risks[95](index=95&type=chunk) - **Acquisition Risks:** The company faces challenges in successfully integrating acquired businesses, such as IBA, which could divert management attention and result in unforeseen operating difficulties. There is also a risk of goodwill impairment, which could negatively affect earnings[107](index=107&type=chunk)[109](index=109&type=chunk) - **Indebtedness Risks:** The company's credit agreement requires compliance with financial covenants (e.g., minimum fixed charge coverage ratio, maximum leverage ratio). A failure to comply could lead to default and acceleration of debt repayment. The transition away from LIBOR may also affect debt servicing costs[112](index=112&type=chunk)[113](index=113&type=chunk) - **Corporate Structure & Stock Risks:** A significant concentration of ownership exists, with executive officers, directors, and the largest shareholder (Wynnefield Capital, Inc.) owning approximately **44%** of outstanding common stock, which may deter a change in control[124](index=124&type=chunk) [Unresolved Staff Comments](index=20&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments[138](index=138&type=chunk) [Properties](index=20&type=section&id=Item%202.%20Properties) DLH operates from leased facilities across seven locations, with its corporate headquarters in Atlanta, Georgia - The company does not own any real estate and operates out of leased facilities. Its corporate headquarters is in Atlanta, Georgia[139](index=139&type=chunk) - For the fiscal year ended September 30, 2020, the company's total lease expense was approximately **$4.2 million**[140](index=140&type=chunk) [Legal Proceedings](index=20&type=section&id=Item%203.%20Legal%20Proceedings) The company is not aware of any pending litigation likely to materially affect its financial results - The Company is not aware of any pending or threatened litigation that it believes is reasonably likely to have a material adverse effect on its results of operations, financial position or cash flows[141](index=141&type=chunk) [Mine Safety Disclosure](index=20&type=section&id=Item%204.%20Mine%20Safety%20Disclosure) This item is not applicable to the company - Not applicable[142](index=142&type=chunk) Part II [Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities](index=21&type=section&id=Item%205.%20Market%20For%20the%20Registrant%27s%20Common%20Equity%2C%20Related%20Shareholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) DLHC common stock trades on Nasdaq, with no cash dividends paid or planned, and approximately 1,300 beneficial owners - The company's common stock is traded on The Nasdaq Capital Market under the symbol **"DLHC"**[145](index=145&type=chunk) - The company has never declared or paid cash dividends on its common stock and has no present intention of doing so[145](index=145&type=chunk) - As of September 30, 2020, there were **12,404,406** shares of common stock outstanding, held by an estimated **1,300** beneficial owners[146](index=146&type=chunk) [Selected Financial Data](index=21&type=section&id=Item%206.%20Selected%20Financial%20Data) As a "smaller reporting company," DLH is not required to provide selected financial data - The company is a **"smaller reporting company"** and is not required to provide the information contained in this item[150](index=150&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) FY2020 revenue grew 30.4% to $209.2 million, driven by acquisitions, with net income rising to $7.1 million Consolidated Statement of Operations Summary (FY2020 vs. FY2019) | Metric | FY 2020 (in thousands) | FY 2019 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Revenue | $209,185 | $160,391 | $48,794 | | Income from operations | $13,461 | $9,968 | $3,493 | | Net income | $7,114 | $5,324 | $1,790 | | Diluted EPS | $0.54 | $0.41 | $0.13 | - Revenue for FY2020 increased by **$48.8 million** (**30.4%**) to **$209.2 million**, primarily due to the inclusion of a full year of results from Social & Scientific Systems, Inc. (S3), which was acquired in June 2019[178](index=178&type=chunk) Reconciliation of GAAP Net Income to EBITDA (Non-GAAP) | Metric | FY 2020 (in thousands) | FY 2019 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Net income | $7,114 | $5,324 | $1,790 | | Interest expense, net | $3,441 | $2,473 | $968 | | Provision for taxes | $2,906 | $2,171 | $735 | | Depreciation and amortization | $7,003 | $3,956 | $3,047 | | **EBITDA** | **$20,464** | **$13,924** | **$6,540** | - Cash flow from operations was **$19.5 million** in FY2020. The company used **$32.8 million** in investing activities, primarily for the IBA acquisition, and received **$12.9 million** from financing activities, mainly from its credit facility[193](index=193&type=chunk)[194](index=194&type=chunk)[195](index=195&type=chunk) - As of September 30, 2020, the company had a **$70.0 million** secured term loan and access to a **$25.0 million** revolving line of credit, with **$24.8 million** of unused borrowing capacity[197](index=197&type=chunk)[200](index=200&type=chunk)[201](index=201&type=chunk) - The company believes its key programs benefit from bipartisan support and does not expect a material impact from budget negotiations, though the government was operating under a Continuing Resolution (CR) expiring December 11, 2020[161](index=161&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate fluctuations on variable-rate debt, partially mitigated by a swap - The company's main market risk is interest rate risk. A **1.0%** increase in the LIBOR rate would increase annual interest expense by **$0.2 million**[226](index=226&type=chunk) - To manage interest rate risk, the company entered into a floating-to-fixed interest rate swap with a notional amount of **$36 million**[226](index=226&type=chunk) [Financial Statements and Supplemental Data](index=31&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplemental%20Data) This item refers to the Consolidated Financial Statements starting on page F-1 - This item directs the reader to the Consolidated Financial Statements beginning on page **F-1**[227](index=227&type=chunk) [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=31&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes or disagreements with its accountants on financial disclosure - None reported[228](index=228&type=chunk) [Controls and Procedures](index=31&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded disclosure controls and internal control over financial reporting were effective as of September 30, 2020 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the fiscal year[229](index=229&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of September 30, 2020, based on the COSO framework[234](index=234&type=chunk) - No material changes in internal control over financial reporting occurred during the fourth quarter of fiscal 2020[237](index=237&type=chunk) [Other Information](index=32&type=section&id=Item%209B.%20Other%20Information) No other information is reported for this item - None reported[238](index=238&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=33&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the proxy statement - Information is incorporated by reference from the Company's definitive proxy statement[241](index=241&type=chunk) [Executive Compensation](index=33&type=section&id=Item%2011.%20Executive%20Compensation) Executive compensation information is incorporated by reference from the company's definitive proxy statement - Information is incorporated by reference from the Company's definitive proxy statement[243](index=243&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=33&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership information is incorporated by reference from the company's definitive proxy statement - Information is incorporated by reference from the Company's definitive proxy statement[244](index=244&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=33&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related transactions and director independence is incorporated by reference from the proxy statement - Information is incorporated by reference from the Company's definitive proxy statement[245](index=245&type=chunk) [Principal Accountant Fees and Services](index=33&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Principal accountant fees and services information is incorporated by reference from the proxy statement - Information is incorporated by reference from the Company's definitive proxy statement[246](index=246&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=33&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all financial statements, schedules, and exhibits filed with the Form 10-K report - This section provides a list of all exhibits filed with the Form 10-K, including stock purchase agreements, credit agreements, employment agreements, and required certifications[250](index=250&type=chunk)[252](index=252&type=chunk) [Form 10-K Summary](index=36&type=section&id=Item%2016.%20Form%2010-K%20Summary) No summary is provided under this item - None[256](index=256&type=chunk) Consolidated Financial Statements [Consolidated Statements of Operations](index=39&type=section&id=Consolidated%20Statements%20of%20Operations) FY2020 revenue increased to **$209.2 million** and net income to **$7.1 million**, with diluted EPS at **$0.54** Statement of Operations Highlights | Metric | Year Ended Sep 30, 2020 (in thousands) | Year Ended Sep 30, 2019 (in thousands) | | :--- | :--- | :--- | | Revenue | $209,185 | $160,391 | | Income from operations | $13,461 | $9,968 | | Net income | $7,114 | $5,324 | | Diluted EPS | $0.54 | $0.41 | [Consolidated Balance Sheets](index=40&type=section&id=Consolidated%20Balance%20Sheets) As of September 30, 2020, total assets were **$183.6 million**, total liabilities **$130.1 million**, and shareholders' equity **$53.4 million** Balance Sheet Highlights | Metric | As of Sep 30, 2020 (in thousands) | As of Sep 30, 2019 (in thousands) | | :--- | :--- | :--- | | Total Current Assets | $37,397 | $26,847 | | Goodwill | $67,144 | $52,758 | | Intangible assets, net | $52,612 | $41,208 | | **Total Assets** | **$183,562** | **$129,258** | | Total Current Liabilities | $47,961 | $29,485 | | Total Long-term Liabilities | $82,164 | $54,202 | | **Total Liabilities** | **$130,125** | **$83,687** | | **Total Shareholders' Equity** | **$53,437** | **$45,571** | [Consolidated Statements of Cash Flows](index=41&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) FY2020 net cash from operations was **$19.5 million**, with **$32.8 million** used in investing and **$12.9 million** from financing Cash Flow Summary | Cash Flow Activity | Year Ended Sep 30, 2020 (in thousands) | Year Ended Sep 30, 2019 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $19,451 | $18,039 | | Net cash used in investing activities | ($32,830) | ($67,484) | | Net cash provided by financing activities | $12,946 | $44,880 | | **Net change in cash and cash equivalents** | **($433)** | **($4,565)** | [Notes to Consolidated Financial Statements](index=43&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail accounting policies, revenue recognition, lease accounting, credit facilities, and business combinations - **Revenue Recognition (Note 5):** Revenue is recognized over time as services are rendered, primarily using a cost-based input method. The majority of contracts are with the U.S. government, which allows for termination for convenience, supporting the over-time recognition model[308](index=308&type=chunk) Disaggregated Revenue by Contract Type (Note 5) | Contract Type | FY 2020 Revenue (in thousands) | FY 2019 Revenue (in thousands) | | :--- | :--- | :--- | | Time and materials | $147,509 | $134,136 | | Cost reimbursable | $58,091 | $23,200 | | Firm fixed price | $3,585 | $3,055 | | **Total Revenue** | **$209,185** | **$160,391** | - **Leases (Note 6):** The company adopted ASC 842 on October 1, 2019, resulting in the recognition of operating lease right-of-use assets of **$17.4 million** and lease liabilities of **$18.0 million** on the balance sheet[285](index=285&type=chunk)[320](index=320&type=chunk) - **Credit Facilities (Note 8):** As of Sep 30, 2020, the company has a **$70.0 million** secured term loan maturing in 2025 with an interest rate of LIBOR + **3.5%** (subject to a **0.5%** floor) and a **$25.0 million** revolving line of credit. The company is in compliance with all financial covenants[345](index=345&type=chunk)[346](index=346&type=chunk) - **Business Combinations (Note 16):** The company acquired Irving Burton Associates, LLC (IBA) on September 30, 2020, for a preliminary net purchase price of **$32.7 million**. The preliminary allocation resulted in goodwill of **$14.4 million** and intangible assets of **$16.2 million**[379](index=379&type=chunk)[339](index=339&type=chunk)[336](index=336&type=chunk)

Financial Performance and Key Metrics - The company reported revenue of $51.5 million for Q3 2020, an increase from $38.7 million in the prior year's third quarter, largely due to the impact of the S3 acquisition [28][29] - Operating income rose to $3.8 million in Q3 2020 from $1.7 million in the previous year, reflecting operating margins of 7.4% compared to 4.4% [29] - EBITDA for Q3 2020 was $5.5 million, up from $2.6 million in the prior-year period, with EBITDA as a percentage of sales increasing to 10.7% from 6.7% [30] Business Line Performance - The increase in revenue was attributed to the S3 acquisition, which was fully reported in 2020 compared to only three weeks in the prior year [28] - The company has won new work related to COVID-19 research and testing, which is expected to contribute to future revenues [28][10] Market Data and Key Metrics - The company generated $10 million in operating cash during the quarter and paid down $10.5 million of debt, totaling $25.5 million of senior debt paid down since the S3 acquisition [9][31] - The company anticipates a debt balance of between $40 million to $42 million at fiscal year-end [31] Company Strategy and Industry Competition - The company is focusing on COVID-19 related projects, leveraging its experience in clinical trials and relationships with government agencies [20][23] - New leadership additions are expected to enhance performance and growth trajectory, with a focus on organic growth and new business development initiatives [12][13] Management Commentary on Operating Environment and Future Outlook - Management expressed confidence in the company's resilience and ability to deliver solid performance despite the challenges posed by the pandemic [7][24] - The company is committed to adapting its business model to meet the evolving needs of the market, particularly in response to COVID-19 [15][19] Other Important Information - The company has implemented safety measures for employees and has formed an in-house task force to monitor COVID-19 impacts [19][14] - Management emphasized the importance of diversity and inclusion within the organization and community engagement initiatives [25][27] Q&A Session Summary Question: Expectations for sequential improvement in EBITDA margins into Q4 - Management does not expect a significant bump in Q4 but aims to sustain the levels delivered in Q3 [33] Question: Timing for recognizing COVID-related revenues - Management indicated that revenue flow from COVID-related projects will be variable and dependent on the ongoing situation with the virus [36][37] Question: Discussion on elevated accounts receivable - Management acknowledged elevated accounts receivable due to integration efforts and expects normalization by the end of the fiscal period [48] Question: Estimate of organic growth in the quarter - Management noted substantial organic growth driven by expansion in services to veterans, with further quantification to be provided later [50]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2020 o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 0-18492 DLH HOLDINGS CORP. (Exact name of registrant as specified in its charter) New Jersey (State or other jurisdiction of incorporation or organiza ...

DLH Holdings Corp. (NASDAQ:DLHC) Q2 2020 Earnings Conference Call May 7, 2020 11:00 AM ET Company Participants Chris Witty - IR Adviser Zach Parker - President & CEO Kathryn JohnBull - CFO Conference Call Participants Ken Herbert - Canaccord Christian Bliska - NOBLE Capital Operator Good day, and welcome to the DLH Holdings Corp. Fiscal 2020 Second Quarter Earnings Call. [Operator Instructions] Please note, today's event is being recorded. I would now like to hand the conference over to Chris Witty, DLH Inv ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2020 o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | --- | --- | --- | |-----------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------- ...