Financial Highlights - The company reported third-quarter revenue exceeding $100 million, marking a new milestone and reflecting successful acquisitions and integrations [3][14] - Net income for the third quarter was approximately $1.7 million or $0.12 per diluted share, down from $4.9 million or $0.34 per share in the previous year [7] - Adjusted EBITDA increased by 36% to approximately $11.4 million compared to $8.4 million in the prior year [7][14] - Adjusted revenue rose 43% to just over $102 million from $71.5 million last year [14] Business Line Performance - Adjusted income from operations was $7.1 million for the quarter, up from $6.5 million in the prior year, reflecting a 9% increase [14] - The operating margin decreased to 7% in fiscal '23 from 10.7% in fiscal '22, attributed to higher non-cash depreciation and amortization expenses due to the GRSi acquisition [14] Market Data - The company has access to numerous billion-dollar IDIQ contract vehicles, enhancing its ability to compete for value-added agency work [5] - The White House's fiscal 2024 preliminary budget includes historic investments in research, AI, machine learning, and digital transformation, which are expected to boost growth [5] Company Strategy and Industry Competition - The company is focused on leveraging its differentiated capabilities and broad array of technology solutions to support government goals [5] - The integration of GRSi is on track, with completed transitions to key business systems, leading to greater operational efficiencies [37] Management Commentary on Operating Environment and Future Outlook - Management expressed optimism about fiscal 2024, citing numerous growth opportunities and a positive outlook for the company's underlying results [5] - The company is actively managing its working capital and utilizing favorable tax attributes from acquisitions to minimize tax payments [17] Other Important Information - The company reduced its debt by approximately $8.5 million in the third fiscal quarter, ending with $195.8 million outstanding [17] - Interest expense increased to $4.9 million in the third quarter of 2023 from $0.5 million in the prior year, reflecting higher debt levels due to the GRSi acquisition [39] Q&A Session Summary Question: Inquiry about IDIQ contracts and bidding opportunities - Management noted that recent IDIQ contracts, particularly with NHLBI, present new workforce opportunities and a strong track record for winning bids [22] - The resolution of delays in the CIO-SP4 contract is anticipated to open up more opportunities for the company [23] Question: Update on VA contracts - Management confirmed ongoing bridge contracts with the VA and expressed optimism about future opportunities despite no definitive actions yet [24] Question: Proposal activity and bidding trends - Management indicated a healthy bid-and-proposal backlog, with recent increases in proposal activity outside of IDIQs [29]

© Copyright 2023 DLH Holdings Corp. All Rights Reserved ► 1 FY2023 Third Quarter Earnings Presentation: Three Months Ended 6.30.2023 AUGUST 3, 2023 CALL PARTICIPANTS Zach Parker President and CEO © Copyright 2023 DLH Holdings Corp. All Rights Reserved ► 2 "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: © Copyright 2023 DLH Holdings Corp. All Rights Reserved ► 3 $102.2M $7.1M $11.4M $195.8M $817.8M Reflects acquisition of GRSi As of June 30, 2023 TERM LOAN BACKLOG Third Qu ...

```markdown [Part I — Financial Information](index=3&type=section&id=Part%20I%20%E2%80%94%20Financial%20Information) Presents the unaudited consolidated financial statements and management's discussion and analysis for DLH Holdings Corp [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Presents the unaudited consolidated financial statements, including operations, balance sheets, cash flows, equity, and detailed accounting notes [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) Details revenues, operating costs, income, interest expense, net income, and earnings per share for the three and nine months ended June 30 Consolidated Statements of Operations (Three Months Ended June 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (YoY) | | :-------------------------- | :------------------ | :------------------ | :----------- | | Revenue | $102,241 | $66,440 | +$35,801 | | Total operating costs | $95,134 | $59,326 | +$35,808 | | Income from operations | $7,107 | $7,114 | -$7 | | Interest expense | $4,917 | $512 | +$4,405 | | Net income | $1,738 | $4,864 | -$3,126 | | Net income per share - diluted | $0.12 | $0.34 | -$0.22 | Consolidated Statements of Operations (Nine Months Ended June 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (YoY) | | :-------------------------- | :------------------ | :------------------ | :----------- | | Revenue | $274,385 | $327,940 | -$53,555 | | Total operating costs | $257,465 | $299,352 | -$41,887 | | Income from operations | $16,920 | $28,588 | -$11,668 | | Interest expense | $11,512 | $1,739 | +$9,773 | | Net income | $4,090 | $19,846 | -$15,756 | | Net income per share - diluted | $0.28 | $1.40 | -$1.12 | [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) Provides a snapshot of assets, liabilities, and shareholders' equity as of June 30, 2023, and September 30, 2022 Balance Sheet Highlights (June 30, 2023 vs. September 30, 2022) | Metric | June 30, 2023 (in thousands) | September 30, 2022 (in thousands) | Change | | :---------------------------------- | :------------------------------- | :------------------------------- | :------- | | Total assets | $359,375 | $169,012 | +$190,363 | | Total liabilities | $254,209 | $76,952 | +$177,257 | | Total shareholders' equity | $105,166 | $92,060 | +$13,106 | | Goodwill | $138,301 | $65,643 | +$72,658 | | Intangible assets, net | $128,891 | $40,884 | +$88,007 | | Debt obligations - long-term, net | $159,379 | $20,416 | +$138,963 | [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Details cash flows from operating, investing, and financing activities, highlighting shifts and GRSi acquisition impacts Cash Flow Highlights (Nine Months Ended June 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change | | :-------------------------------------- | :------------------ | :------------------ | :----------- | | Net cash provided by (used in) operating activities | $14,997 | $(4,759) | +$19,756 | | Net cash used in investing activities | $(181,291) | $(244) | -$181,047 | | Net cash provided by (used in) financing activities | $166,596 | $(17,988) | +$184,584 | | Net change in cash | $302 | $(22,991) | +$23,293 | | Cash - end of period | $530 | $1,060 | -$530 | - Key Investing Activity: **Business acquisition, net of cash acquired: $(180,711) thousand in 2023**[16](index=16&type=chunk) - Key Financing Activities (2023): **Proceeds from revolving line of credit: $144,697 thousand**; **Proceeds from debt obligations: $168,000 thousand**[16](index=16&type=chunk) [Consolidated Statements of Shareholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Shareholders%27%20Equity) Outlines changes in shareholders' equity, reflecting net income, stock issuances for acquisitions, and stock-based compensation Shareholders' Equity (Nine Months Ended June 30, 2023) | Metric | September 30, 2022 (in thousands) | June 30, 2023 (in thousands) | | :------------------------------------------------ | :-------------------------------- | :----------------------------- | | Balance | $92,060 | $105,166 | | Issuance and fair value adjustment of common stock in business combination | — | $6,539 | | Net income | $990 (Retained Earnings) | $4,090 (Retained Earnings) | [Notes to Consolidated Financial Statements (Unaudited)](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(Unaudited)) Provides detailed explanations and disclosures for the consolidated financial statements, covering accounting policies and key financial areas [1. Basis of Presentation and Principles of Consolidation](index=8&type=section&id=1.%20Basis%20of%20Presentation%20and%20Principles%20of%20Consolidation) States that financial statements include DLH Holdings Corp. and subsidiaries, prepared in accordance with GAAP for interim information - The financial statements are **unaudited** and include normal recurring accruals[22](index=22&type=chunk) - Operating results for the period ended June 30, 2023, are not necessarily indicative of the full year or future periods[22](index=22&type=chunk) [2. Significant Accounting Policies](index=8&type=section&id=2.%20Significant%20Accounting%20Policies) Details critical accounting policies, including estimates, revenue recognition, fair value, long-lived assets, leases, goodwill, and derivatives - Revenue is derived from technology-enabled business process outsourcing, program management, and public health research for the U.S. government, recognized over time based on progress[24](index=24&type=chunk)[26](index=26&type=chunk) - Revenue recognition methods include: **Time and material** (invoiced amount), **Cost reimbursable** (costs incurred plus estimated fee), and **Firm fixed price** (straight-line measure of progress)[29](index=29&type=chunk)[36](index=36&type=chunk) - **Goodwill** is reviewed for impairment annually and quarterly for macroeconomic impacts; **no material adverse effect on valuation identified** as of June 30, 2023[38](index=38&type=chunk)[170](index=170&type=chunk) - The Company uses derivative financial instruments (**interest rate swaps**) to manage interest rate risk, not for trading or speculative purposes[47](index=47&type=chunk) [3. New Accounting Pronouncements](index=12&type=section&id=3.%20New%20Accounting%20Pronouncements) Discusses the adoption of ASU 2020-04 and ASU No. 2021-01 (Topic 848) related to Reference Rate Reform, with no material impact - The Company adopted optional expedients and exceptions provided in **Topic 848 (Reference Rate Reform)** in the first quarter of fiscal 2023[50](index=50&type=chunk) - The adoption of Topic 848 did not have a **material impact** on the Company's consolidated financial statements[50](index=50&type=chunk) [4. Business Combination](index=14&type=section&id=4.%20Business%20Combination) Details the **GRSi acquisition** on December 8, 2022, for **$188.0 million**, financed by debt and common stock, diversifying contracts and capabilities - Acquisition of **Grove Resource Solutions, LLC ("GRSi")** completed on **December 8, 2022**[51](index=51&type=chunk) - Purchase price was **$188.0 million**, financed by **$181.5 million** from credit facility and **$6.5 million** in common stock[51](index=51&type=chunk)[55](index=55&type=chunk) - Acquisition rationale: contract diversification, addition of key capabilities, and increased presence in the military health market[51](index=51&type=chunk) GRSi Contribution (Nine Months Ended June 30, 2023) | Metric | Amount (in millions) | | :-------------------- | :------------------- | | Revenue | $73.9 | | Income from operations | $4.1 | [5. Revenue Recognition](index=16&type=section&id=5.%20Revenue%20Recognition) Provides disaggregation of revenue by customer, contract type, and contractor role, showing significant increases from HHS and DoD Contract Assets (June 30, 2023 vs. September 30, 2022) | Metric | June 30, 2023 (in thousands) | September 30, 2022 (in thousands) | | :-------------- | :------------------------------- | :------------------------------- | | Contract assets | $19,300 | $7,682 | Revenue by Customer (Three Months Ended June 30) | Customer | 2023 (in thousands) | 2022 (in thousands) | Change (YoY) | | :-------------------------------- | :------------------ | :------------------ | :----------- | | Department of Veterans Affairs | $35,898 | $33,344 | +$2,554 | | Department of Health and Human Services | $44,536 | $27,741 | +$16,795 | | Department of Defense | $21,003 | $8,272 | +$12,731 | | Department of Homeland Security | $256 | $(4,908) | +$5,164 | Revenue by Contract Type (Three Months Ended June 30) | Contract Type | 2023 (in thousands) | 2022 (in thousands) | Change (YoY) | | :---------------- | :------------------ | :------------------ | :----------- | | Time and Materials | $51,572 | $44,672 | +$6,900 | | Cost Reimbursable | $29,110 | $11,979 | +$17,131 | | Firm Fixed Price | $21,559 | $9,789 | +$11,770 | Revenue by Contractor Role (Three Months Ended June 30) | Role | 2023 (in thousands) | 2022 (in thousands) | Change (YoY) | | :---------------- | :------------------ | :------------------ | :----------- | | Prime Contractor | $97,885 | $58,743 | +$39,142 | | Subcontractor | $4,356 | $7,697 | -$3,341 | [6. Leases](index=17&type=section&id=6.%20Leases) Details operating lease balances, showing increases in right-of-use assets and liabilities, with future minimum payments and weighted-average terms Lease Balances (June 30, 2023 vs. September 30, 2022) | Metric | June 30, 2023 (in thousands) | September 30, 2022 (in thousands) | | :-------------------------------- | :------------------------------- | :------------------------------- | | Operating lease right-of-use assets | $17,911 | $16,851 | | Total operating lease liabilities | $19,963 | $18,696 | Total Lease Costs (Nine Months Ended June 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | | :-------------- | :------------------ | :------------------ | | Total lease costs | $2,995 | $2,670 | - As of June 30, 2023, total future lease payments are **$24,703 thousand**, with a present value of **$19,963 thousand**[63](index=63&type=chunk) - Weighted-average remaining lease term: **6.3 years**; Weighted-average discount rate: **6.4%**[63](index=63&type=chunk) [7. Supporting Financial Information](index=18&type=section&id=7.%20Supporting%20Financial%20Information) Provides detailed breakdowns of accounts receivable, other current assets, equipment, intangible assets, goodwill, and accounts payable Accounts Receivable (June 30, 2023 vs. September 30, 2022) | Metric | June 30, 2023 (in thousands) | September 30, 2022 (in thousands) | | :---------------- | :------------------------------- | :------------------------------- | | Billed receivables | $48,582 | $32,814 | | Contract assets | $19,300 | $7,682 | | Total | $67,882 | $40,496 | Intangible Assets, Net (June 30, 2023 vs. September 30, 2022) | Metric | June 30, 2023 (in thousands) | September 30, 2022 (in thousands) | | :------------------------------------ | :------------------------------- | :------------------------------- | | Customer contracts and relationships | $113,622 | $47,044 | | Trade name | $13,034 | $3,051 | | Backlog | $37,249 | $15,237 | | Total intangible assets, net | $128,891 | $40,884 | - **Goodwill increased by $72,658 thousand** from the GRSi acquisition, totaling **$138,301 thousand** as of June 30, 2023[70](index=70&type=chunk) - Amortization expense for the nine months ended June 30, 2023, was **$10.7 million**, up from **$4.9 million** in the prior year[68](index=68&type=chunk) [8. Credit Facilities](index=20&type=section&id=8.%20Credit%20Facilities) Details secured term loan and revolving line of credit, including SOFR-based interest rates, maturity dates, and compliance with covenants Credit Facilities (June 30, 2023) | Arrangement | Loan Balance (in millions) | Interest | Maturity Date | | :-------------------------------------- | :------------------------- | :--------------- | :-------------- | | Secured term loan | $179.3 | SOFR* + 4.2% | December 8, 2027 | | Secured revolving line of credit | $16.4 | SOFR* + 4.2% | December 8, 2027 | *SOFR as of June 30, 2023 was 5.2%. - Total notional amount of floating-to-fixed interest rate swaps is **$112.2 million** as of June 30, 2023[77](index=77&type=chunk) - The Company is in **compliance with all loan covenants and restrictions**[79](index=79&type=chunk)[83](index=83&type=chunk) - Unused borrowing capacity on the revolving line of credit was **$32.9 million** as of June 30, 2023[82](index=82&type=chunk) [9. Stock-Based Compensation and Equity Grants](index=22&type=section&id=9.%20Stock-Based%20Compensation%20and%20Equity%20Grants) Outlines stock-based compensation expense, types of equity grants, unrecognized expense, and stock option activity Total Stock Option Expense (Nine Months Ended June 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | | :-------------------- | :------------------ | :------------------ | | DLH employees | $1,481 | $1,466 | | Non-employee directors | $539 | $486 | | Total | $2,020 | $1,952 | - **Unrecognized stock-based compensation expense totaled $7,513 thousand** as of June 30, 2023, expected to be recognized over **4.1 years**[88](index=88&type=chunk) - **Stock options outstanding** as of June 30, 2023, were **2,241 thousand shares** with a weighted average exercise price of **$8.36**[90](index=90&type=chunk) [10. Earnings Per Share](index=25&type=section&id=10.%20Earnings%20Per%20Share) Explains the calculation of basic and diluted earnings per share and presents figures for the three and nine months ended June 30 Earnings Per Share (Three Months Ended June 30) | Metric | 2023 | 2022 | | :---------------------- | :----- | :----- | | Basic EPS | $0.13 | $0.38 | | Diluted EPS | $0.12 | $0.34 | Earnings Per Share (Nine Months Ended June 30) | Metric | 2023 | 2022 | | :---------------------- | :----- | :----- | | Basic EPS | $0.30 | $1.55 | | Diluted EPS | $0.28 | $1.40 | [11. Commitments and Contingencies](index=25&type=section&id=11.%20Commitments%20and%20Contingencies) Outlines contractual obligations, including debt and operating leases, and addresses workers' compensation accruals and legal proceedings Total Contractual Obligations (as of June 30, 2023) | Obligation Type | Total (in thousands) | | :---------------------- | :------------------- | | Debt obligations | $195,760 | | Facility operating leases | $24,636 | | Equipment operating leases | $67 | | **Total** | **$220,463** | - **Accrued liability for workers' compensation claims development was $2.7 million** as of June 30, 2023, down from **$4.9 million** at September 30, 2022[99](index=99&type=chunk) - The Company is not aware of any pending or threatened litigation likely to have a **material adverse effect** on its financial results[101](index=101&type=chunk) [12. Related Party Transactions](index=26&type=section&id=12.%20Related%20Party%20Transactions) States that no significant related party transactions occurred during the periods ended June 30, 2023 and 2022 - **No significant related party transactions** occurred during the three and nine months ended June 30, 2023 and 2022[102](index=102&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Provides management's perspective on financial performance, condition, and outlook, including revenue drivers, costs, and liquidity [Forward-Looking and Cautionary Statements](index=26&type=section&id=Forward-Looking%20and%20Cautionary%20Statements) Warns that the report contains forward-looking statements subject to risks and uncertainties, where actual results may differ materially - The report contains **forward-looking statements** that involve risks and uncertainties, which could cause actual results to differ materially[103](index=103&type=chunk) - Key risk factors include failure to achieve anticipated benefits of acquisitions, inability to retain employees and customers, contract award competition, increased debt obligations, and changes in client budgetary priorities[103](index=103&type=chunk) [Business and Markets Overview](index=26&type=section&id=Business%20and%20Markets%20Overview) Describes DLH's core business of enhancing public health and national security missions for federal agencies, with 99% of revenue from the U.S. government - DLH enhances public health and national security readiness missions through science, technology, cyber, and engineering solutions and services[104](index=104&type=chunk) - **99% of revenue** is derived from U.S. federal government agencies[104](index=104&type=chunk) Revenue by Customer (Three Months Ended June 30, 2023) | Customer | Revenue (in thousands) | Percent of total revenue | | :-------------------------------- | :--------------------- | :----------------------- | | Department of Health and Human Services | $44,536 | 43.6% | | Department of Veterans Affairs | $35,898 | 35.1% | | Department of Defense | $21,003 | 20.5% | [Acquisitions](index=27&type=section&id=Acquisitions) Reaffirms the **GRSi acquisition** as a strategic move to boost organic growth, diversify customers, and expand into adjacent federal markets - Acquired **Grove Resource Solutions, LLC. ("GRSi")** on **December 8, 2022**[106](index=106&type=chunk) - Acquisition aimed to increase future organic growth, diversify customer base, and expand into adjacent markets[106](index=106&type=chunk) - GRSi provides R&D, systems engineering, and digital transformation solutions to federal agencies including NIH, U.S. Navy, and U.S. Marine Corps[106](index=106&type=chunk) [Major Contracts](index=28&type=section&id=Major%20Contracts) Discusses reliance on prime contracts with VA and HHS, noting VA's CMOP program is under bridge agreements and subject to re-compete - VA contracts for pharmacy and logistics services (**CMOP program**) are operating under **bridge contracts through October/November 2023**[108](index=108&type=chunk)[110](index=110&type=chunk) - VA procurement for CMOP services is set-aside for **Service-Disabled Veteran Owned Small Business (SDVOSB)** prime contractors; DLH expects to continue as a subcontractor or compete in unrestricted solicitations[109](index=109&type=chunk) - HHS Head Start program contract generated **$27.1 million** for the nine months ended June 30, 2023, with performance through **April 2025**[110](index=110&type=chunk) - The Company remains dependent upon the continuation of its relationships with the **VA and HHS**[111](index=111&type=chunk) [Backlog](index=28&type=section&id=Backlog) Reports a significant increase in total backlog to **$817.8 million** and funded backlog to **$147.3 million** as of June 30, 2023 Backlog (June 30, 2023 vs. September 30, 2022) | Metric | June 30, 2023 (in millions) | September 30, 2022 (in millions) | Change | | :---------- | :-------------------------- | :-------------------------- | :------- | | Total Backlog | $817.8 | $482.5 | +$335.3 | | Funded Backlog | $147.3 | $98.9 | +$48.4 | - Backlog is defined as the estimate of remaining future revenue from existing signed contracts, including all options and executed task orders[113](index=113&type=chunk) - Funded backlog is the portion of backlog for which funding is appropriated and allocated by the customer[114](index=114&type=chunk) [Forward-Looking Business Trends](index=29&type=section&id=Forward-Looking%20Business%20Trends) Highlights the company's mission to expand as a trusted provider of technology-enabled healthcare and public health services, focusing on military, veterans, and civilian populations - Mission: Expand position as a trusted provider of technology-enabled healthcare and public health services, medical logistics, and readiness enhancement services[118](index=118&type=chunk) - Focus areas include telehealth, behavioral healthcare, medication therapy management, process management, clinical systems support, and healthcare delivery for military service members and veterans[118](index=118&type=chunk) - Civilian agency focus includes compliance monitoring, technology-enabled program management, consulting, and digital communications solutions for underserved and at-risk populations[118](index=118&type=chunk) [Federal budget outlook for 2024](index=29&type=section&id=Federal%20budget%20outlook%20for%202024) Discusses President Biden's FY2024 budget request and the Fiscal Responsibility Act, noting potential impacts from spending reductions or delayed appropriations - President Biden's **FY2024 budget request** focuses on lowering healthcare costs, expanding access to early child care, investing in cutting-edge technologies, and improving global security[119](index=119&type=chunk) - The **Fiscal Responsibility Act caps national defense spending at $886 billion for FY2024 and $895 billion for FY2025**, and suspended the debt ceiling until January 1, 2025[120](index=120&type=chunk) - Adverse changes in fiscal and economic conditions, such as spending reductions, delayed appropriations, inflation, or government shutdowns, could **materially impact the business**[121](index=121&type=chunk) [Industry consolidation among federal government contractors](index=29&type=section&id=Industry%20consolidation%20among%20federal%20government%20contractors) Anticipates continued consolidation and M&A activity among federal government contractors, driven by companies seeking to augment capabilities and diversify contracts - **Active consolidation and strong increase in M&A activity** among federal government contractors is expected to continue[122](index=122&type=chunk) - Acquisitions are often driven by the desire to augment core capabilities, contracts, customers, market differentiators, stability, cost synergies, and higher margin/revenue streams[122](index=122&type=chunk) [Potential impact of Federal Contractual set-aside Laws and Regulations](index=29&type=section&id=Potential%20impact%20of%20Federal%20Contractual%20set-aside%20Laws%20and%20Regulations) Addresses federal small business contracting goals, particularly the VA's "Rule of Two" for SDVOSB set-asides, which may limit DLH's prime contractor role - Federal government has an overall goal of **23% of prime contracts** flowing through small businesses[123](index=123&type=chunk) - The VA's **"Rule of Two"** restricts competition for certain contracts to service-disabled or other veteran-owned businesses[123](index=123&type=chunk) - Set-aside provisions may limit DLH's ability to compete for prime contractor positions, potentially requiring the company to join teams with eligible contractors as subcontractors[124](index=124&type=chunk)[125](index=125&type=chunk) [Results of Operations](index=30&type=section&id=Results%20of%20Operations) Analyzes financial performance for the three and nine months ended June 30, 2023, attributing changes to the GRSi acquisition and FEMA COVID-19 task orders [For the Three Months Ended June 30, 2023 as Compared to the Three Months Ended June 30, 2022](index=30&type=section&id=For%20the%20Three%20Months%20Ended%20June%2030%2C%202023%20as%20Compared%20to%20the%20Three%20Months%20Ended%20June%2030%2C%202022) Revenue increased by **$35.8 million** due to GRSi, while net income decreased by **$3.1 million** from higher costs and interest expense - Revenue increased by **$35.8 million to $102.2 million**, primarily driven by a **$34.4 million contribution from the GRSi acquisition**[128](index=128&type=chunk) - **Net income decreased by $3.1 million to $1.7 million**[126](index=126&type=chunk) - **Total operating costs increased by $35.8 million**, mainly due to the inclusion of GRSi[126](index=126&type=chunk)[130](index=130&type=chunk)[131](index=131&type=chunk) - **Interest expense increased significantly by $4.4 million to $4.9 million**, due to borrowing for the GRSi acquisition[133](index=133&type=chunk) - Q3 FY22 included approximately **($5.1) million in revenue from FEMA COVID-19 task orders**, with no comparable revenue in Q3 FY23[129](index=129&type=chunk) [Results of Operations for the Nine Months Ended June 30, 2023 and 2022](index=31&type=section&id=Results%20of%20Operations%20for%20the%20Nine%20Months%20Ended%20June%2030%2C%202023%20and%202022) Revenue decreased by **$53.6 million** due to FEMA contract completion, offset by GRSi, leading to a **$15.8 million** net income decrease - Revenue decreased by **$53.6 million to $274.4 million**, primarily due to the completion of **$125.8 million in FEMA COVID-19 task orders** in the prior year, partially offset by a **$73.9 million contribution from GRSi**[137](index=137&type=chunk) - **Net income decreased by $15.8 million to $4.1 million**[135](index=135&type=chunk) - **Contract costs decreased by $54.4 million**, principally due to the completion of FEMA task orders[138](index=138&type=chunk) - **Interest expense increased by $9.8 million to $11.5 million**, primarily due to borrowing for the GRSi acquisition[141](index=141&type=chunk) [Non-GAAP Financial Measures](index=32&type=section&id=Non-GAAP%20Financial%20Measures) Presents and reconciles non-GAAP measures like Adjusted Revenue and Adjusted EBITDA to provide a clearer view of ongoing operating performance - Non-GAAP measures include **EBITDA, EBITDA Margin on Revenue, Adjusted Revenue, Adjusted Operating Income, Adjusted EBITDA, and Adjusted EBITDA Margin on Adjusted Revenue**[143](index=143&type=chunk)[147](index=147&type=chunk)[148](index=148&type=chunk) - Adjustments exclude FEMA task orders and include GRSi acquisition corporate development costs to reflect ongoing operating performance[144](index=144&type=chunk)[147](index=147&type=chunk)[148](index=148&type=chunk) Adjusted Revenue and Adjusted EBITDA (Three Months Ended June 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change | | :------------------------------------ | :------------------ | :------------------ | :------- | | Adjusted Revenue | $102,241 | $71,556 | +$30,685 | | Adjusted EBITDA | $11,387 | $8,379 | +$3,008 | | Adjusted EBITDA Margin on Adjusted Revenue | 11.1% | 11.7% | -0.6% | Adjusted Revenue and Adjusted EBITDA (Nine Months Ended June 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change | | :------------------------------------ | :------------------ | :------------------ | :------- | | Adjusted Revenue | $274,385 | $202,167 | +$72,218 | | Adjusted EBITDA | $29,937 | $21,849 | +$8,088 | | Adjusted EBITDA Margin on Adjusted Revenue | 10.9% | 10.8% | +0.1% | [Liquidity and capital management](index=35&type=section&id=Liquidity%20and%20capital%20management) Assesses liquidity, highlighting cash from operations, accounts receivable, and **$32.9 million** available on the revolving line of credit - Immediate sources of liquidity include cash generated from operations, accounts receivable, and access to a secured revolving line of credit facility[153](index=153&type=chunk) - As of June 30, 2023, the Company had **$32.9 million of available borrowing capacity** on its revolving line of credit[153](index=153&type=chunk) - **Cash provided by operating activities was $14,997 thousand** for the nine months ended June 30, 2023[155](index=155&type=chunk) - Operating cash flow is expected to be sufficient to support capital requirements and debt reduction goals for the next twelve months[154](index=154&type=chunk)[156](index=156&type=chunk) [Sources of cash](index=35&type=section&id=Sources%20of%20cash) Reiterates cash position of **$0.5 million**, accounts receivable, and **$32.9 million** in unused borrowing capacity, affirming sufficient liquidity - As of June 30, 2023, immediate liquidity sources include **$0.5 million in cash**, accounts receivable, and **$32.9 million in unused borrowing capacity** on the secured revolving line of credit[156](index=156&type=chunk) - Planned operating cash flow is believed to be sufficient to support operations for twelve months from the issuance date of the financial statements[156](index=156&type=chunk) [Credit Facilities](index=35&type=section&id=Credit%20Facilities) Summarizes secured term loan (**$179.3 million**) and revolving line of credit (**$16.4 million** outstanding), both SOFR-based and maturing in December 2027 Credit Facilities Summary (June 30, 2023) | Arrangement | Loan Balance | Interest* | Maturity Date | | :-------------------------------------- | :----------- | :-------- | :-------------- | | Secured term loan | $179.3 million | SOFR* + 4.2% | December 8, 2027 | | Secured revolving line of credit | $16.4 million | SOFR* + 4.2% | December 8, 2027 | *SOFR as of June 30, 2023 was 5.2%. - The Company has floating-to-fixed interest rate swaps with a total notional amount of **$112.2 million** as of June 30, 2023[157](index=157&type=chunk) - Both the secured term loan and revolving line of credit are secured by liens on substantially all of the Company's assets[158](index=158&type=chunk)[159](index=159&type=chunk) [Contractual Obligations as of June 30, 2023](index=36&type=section&id=Contractual%20Obligations%20as%20of%20June%2030%2C%202023) Presents future payments for debt obligations and operating leases, totaling **$220.5 million**, with significant portions due in 2-5 years Contractual Obligations (as of June 30, 2023, in thousands) | Obligation Type | Total | Next 12 Months | 2-3 Years | 4-5 Years | More than 5 Years | | :---------------------- | :------ | :------------- | :---------- | :---------- | :---------------- | | Debt obligations | $195,760 | $14,250 | $36,813 | $144,697 | — | | Facility operating leases | $24,636 | $3,501 | $7,963 | $5,668 | $7,504 | | Equipment operating leases | $67 | $17 | $50 | — | — | | **Total** | **$220,463** | **$17,768** | **$44,826** | **$150,365** | **$7,504** | [Critical Accounting Policies and Estimates](index=36&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Discusses key accounting policies and estimates requiring significant management judgment, including revenue recognition, long-lived assets, and income taxes [Use of Estimates](index=36&type=section&id=Use%20of%20Estimates) Highlights that financial statement preparation involves significant management estimates and assumptions, with actual results potentially differing - Preparation of financial statements requires management to make **significant estimates and assumptions**[161](index=161&type=chunk) - Significant estimates include valuation of goodwill and intangible assets, stock-based compensation, and measurement of loss development on workers' compensation claims[161](index=161&type=chunk) [Revenue Recognition](index=36&type=section&id=Revenue%20Recognition) Explains revenue recognition over time for U.S. government contracts using cost-based input and time-based output methods - Revenue is recognized over time for U.S. government contracts when there is a **continuous transfer of control** to the customer[162](index=162&type=chunk) - Progress is measured using **cost-based input and time-based output methods** for time and materials, cost-reimbursable, and firm fixed price contracts[162](index=162&type=chunk)[163](index=163&type=chunk) [Long-lived Assets](index=37&type=section&id=Long-lived%20Assets) Describes accounting for long-lived assets, including equipment, right-of-use assets, and intangibles, depreciated/amortized over useful lives - Long-lived assets include equipment and improvements, right-of-use assets, and intangible assets[165](index=165&type=chunk) - Assets are reviewed for impairment at least annually or more frequently if circumstances indicate a loss of value[165](index=165&type=chunk) - Intangible assets are recorded at fair value and amortized on a **straight-line basis over their estimated useful lives of 10 years**[169](index=169&type=chunk) [Goodwill](index=37&type=section&id=Goodwill) States that goodwill is reviewed for impairment annually, with **no impairment loss warranted** as of June 30, 2023, despite future risks - Goodwill is reviewed for impairment at least annually or more frequently upon the occurrence of an event or change in circumstances[170](index=170&type=chunk) - **No impairment loss was warranted** as of June 30, 2023, as no material adverse effect on valuation occurred[170](index=170&type=chunk) - Factors like non-renewal of major contracts or substantial changes in business conditions could **materially affect goodwill valuation** in future periods[171](index=171&type=chunk) [Provision for Income Taxes](index=37&type=section&id=Provision%20for%20Income%20Taxes) Explains income taxes are accounted for using the liability method, recognizing deferred tax assets if realization is more likely than not - Income taxes are accounted for using the **liability method**, determining deferred tax assets and liabilities based on differences between financial statement and tax bases[172](index=172&type=chunk) - **Deferred tax assets are recognized** when it is more likely than not that the asset will be realized[172](index=172&type=chunk) [Stock-based Equity Compensation](index=37&type=section&id=Stock-based%20Equity%20Compensation) Details the fair value-based method for stock-based compensation, expensed over vesting periods using a Monte Carlo method - The Company uses the **fair value-based method** for stock-based compensation[173](index=173&type=chunk) - Awards are recorded at fair value on the grant date and expensed over the vesting period, using a **Monte Carlo method** to estimate fair value[173](index=173&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Discloses exposure to interest rate risk on variable-rate debt, partially mitigated by **$112.2 million** in interest rate swaps - The Company's primary market risk exposure is to **interest rate fluctuations** on its variable-rate debt[174](index=174&type=chunk) - Interest rate risk is partially mitigated by floating-to-fixed interest rate swaps with a total notional amount of **$112.2 million** as of June 30, 2023[175](index=175&type=chunk) - A **1.0% increase in SOFR** would impact the Company's interest expense by approximately **$0.8 million per year**[176](index=176&type=chunk) [Item 4. Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) CEO and CFO evaluated disclosure controls as effective, noting ongoing integration of the GRSi acquisition into the control environment - Disclosure controls and procedures were evaluated as **effective at the reasonable assurance level** as of June 30, 2023[177](index=177&type=chunk) - No material changes in internal control over financial reporting were identified, except for the ongoing integration of **Grove Resource Solutions, LLC** into the existing control environment[179](index=179&type=chunk)[180](index=180&type=chunk) [Part II — Other Information](index=38&type=section&id=Part%20II%20%E2%80%94%20Other%20Information) Presents other required information, including legal proceedings, risk factors, equity sales, defaults, and exhibits [Item 1. Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) The company is subject to various claims in the ordinary course of business but is not aware of any material adverse litigation - The Company is subject to various claims and legal actions in the ordinary course of business[181](index=181&type=chunk) - **No pending or threatened litigation** is believed to be reasonably likely to have a **material adverse effect** on results of operations, financial position, or cash flows[181](index=181&type=chunk) [Item 1A. Risk Factors](index=39&type=section&id=Item%201A.%20Risk%20Factors) Refers readers to the Annual Report on Form 10-K for risk factors, stating no material changes to previously disclosed risks - Readers should refer to the **"Risk Factors" section in the Annual Report on Form 10-K** for the fiscal year ended September 30, 2022, and interim quarterly filings[182](index=182&type=chunk) - **No material changes** from the risk factors described in previous filings have occurred[182](index=182&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=39&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) States that no unregistered sales of equity securities occurred during the reporting period, except as previously reported - The Company did not issue any **unregistered securities** during the period, except as previously reported or disclosed herein[183](index=183&type=chunk) [Item 3. Defaults Upon Senior Securities](index=39&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) Reports no defaults upon senior securities - **No defaults upon senior securities** occurred[184](index=184&type=chunk) [Item 4. Mine Safety Disclosures](index=39&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) States that this item is not applicable to the company - **Mine Safety Disclosures are not applicable** to the Company[185](index=185&type=chunk) [Item 5. Other Information](index=39&type=section&id=Item%205.%20Other%20Information) Reports no other information required to be disclosed - **No other information is required to be disclosed**[186](index=186&type=chunk) [Item 6. Exhibits](index=40&type=section&id=Item%206.%20Exhibits) Lists the exhibits filed with the report, including CEO and CFO certifications and XBRL financial information - Exhibits include certifications of the **Chief Executive Officer and Chief Financial Officer (31.1, 31.2, 32)**[189](index=189&type=chunk) - Financial information from the Quarterly Report on Form 10-Q is formatted in **iXBRL (Exhibit 101.0)** and includes Consolidated Balance Sheets, Statements of Operations, Cash Flows, and Notes[189](index=189&type=chunk) [Signatures](index=41&type=section&id=Signatures) Contains the required signatures for the Form 10-Q, certifying its submission by the Chief Financial Officer - The report is signed by **Kathryn M. JohnBull, Chief Financial Officer**, on behalf of DLH Holdings Corp[193](index=193&type=chunk) - The signing date is **August 2, 2023**[194](index=194&type=chunk) ```

FY2023 Second Quarter Earnings Presentation: Three Months Ended 3.31.2023 CALL PARTICIPANTS Kathryn JohnBull Chief Financial Officer "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Financial Highlights DILUTED EPS $0.06 1A reconciliation of EBITDA is available on slide 17. | --- | --- | --- | |----------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------- ...

DLH Holdings Corporation (NASDAQ:DLHC) Q2 2023 Earnings Conference Call May 4, 2023 10:00 AM ET Company Participants Chris Witty - Darrow Associates Zachary Parker - President, CEO & Director Kathryn JohnBull - CFO & Treasurer Conference Call Participants Joseph Gomes - NOBLE Capital Markets Operator Good morning, and welcome to the DLH Holdings Corp's Fiscal 2023 Second Quarter Earnings Conference Call. [Operator Instructions]. This is call is now being recorded. I would now like to turn the conference to ...

[Part I — Financial Information](index=3&type=section&id=Part%20I%20%E2%80%94%20Financial%20Information) [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The company's financial statements for the three and six months ended March 31, 2023, reflect a significant transformation following the acquisition of Grove Resource Solutions, LLC (GRSi), with decreased reported revenue and net income year-over-year due to a completed FEMA contract, while the balance sheet expanded substantially with increased goodwill, intangible assets, and debt, and cash flows were dominated by the acquisition [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) For the three and six months ended March 31, 2023, revenue and net income declined significantly compared to the same periods in 2022, primarily driven by the conclusion of a major FEMA contract in the prior year, while the recent GRSi acquisition contributed new revenue but also led to higher operating costs, including a substantial increase in interest expense and amortization Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | Three Months Ended Mar 31, 2023 | Three Months Ended Mar 31, 2022 | Six Months Ended Mar 31, 2023 | Six Months Ended Mar 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | **Revenue** | $99,417 | $108,699 | $172,155 | $261,500 | | **Income from operations** | $5,951 | $10,254 | $9,872 | $21,473 | | **Interest expense** | $4,765 | $554 | $6,595 | $1,226 | | **Net income** | $805 | $7,178 | $2,352 | $14,982 | | **Net income per share - diluted** | $0.06 | $0.50 | $0.16 | $1.04 | [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) As of March 31, 2023, the company's balance sheet shows a significant increase in total assets to $362.6 million from $169.0 million at September 30, 2022, primarily due to the GRSi acquisition, which added $72.7 million in goodwill and $92.2 million in net intangible assets, while total liabilities also rose sharply to $260.6 million from $77.0 million, driven by new long-term debt of $162.6 million incurred to finance the acquisition Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | September 30, 2022 | | :--- | :--- | :--- | | **Total current assets** | $70,671 | $43,602 | | **Goodwill** | $138,301 | $65,643 | | **Intangible assets, net** | $133,109 | $40,884 | | **Total assets** | **$362,576** | **$169,012** | | **Total current liabilities** | $79,064 | $38,541 | | **Debt obligations - long-term** | $162,636 | $20,416 | | **Total liabilities** | **$260,636** | **$76,952** | | **Total shareholders' equity** | $101,940 | $92,060 | [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended March 31, 2023, net cash provided by operating activities was $6.9 million, a significant improvement from the $14.8 million used in the prior-year period, while investing activities used $181.2 million almost entirely for the GRSi business acquisition, and financing activities provided $174.2 million, primarily from proceeds from new debt obligations ($168.0 million) and revolving credit ($32.6 million) used to fund the acquisition Six Months Ended March 31, Cash Flow Summary (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $6,862 | $(14,815) | | Net cash used in investing activities | $(181,174) | $(89) | | Net cash provided by (used in) financing activities | $174,221 | $(8,788) | | **Net change in cash** | **$(91)** | **$(23,692)** | - The business acquisition, net of cash acquired, resulted in a cash outflow of **$180.7 million**[17](index=17&type=chunk) - The company received **$168.0 million** in proceeds from new debt obligations and **$32.6 million** from its revolving line of credit to finance the acquisition and other activities[17](index=17&type=chunk) [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail the basis of accounting, significant policies, and key events during the period, with the most significant event being the acquisition of GRSi for $188.0 million, financed through new debt facilities and stock issuance, which substantially increased goodwill, intangible assets, and debt, while revenue is primarily from U.S. government contracts with a notable shift in customer mix due to the completion of a large FEMA contract and the addition of GRSi's business, and the company has also entered into new interest rate swaps to manage risk on its increased variable-rate debt [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the year-over-year decline in revenue and operating income to the completion of a significant, short-term FEMA contract in fiscal 2022, while the acquisition of GRSi in December 2022 is a key strategic move, contributing new revenue streams and significantly increasing the company's backlog to $940.6 million, and after adjusting for the FEMA contract and acquisition costs, the company shows underlying growth in revenue and EBITDA, with solid liquidity supported by operating cash flow and a new, larger credit facility, despite the substantial increase in debt to fund the acquisition, and the company is actively managing interest rate risk on its new debt through swaps - The acquisition of GRSi on December 8, 2022, is a central theme, increasing revenue, operating costs, and interest expense[106](index=106&type=chunk)[127](index=127&type=chunk) - The completion of FEMA task orders in the prior year, which contributed **$39.8 million** in revenue for the quarter ended March 31, 2022, is the primary reason for the year-over-year decline in reported revenue[128](index=128&type=chunk) - Total backlog increased significantly to **$940.6 million** at March 31, 2023, from **$482.5 million** at September 30, 2022, largely due to the GRSi acquisition[112](index=112&type=chunk) [Business and Markets Overview](index=26&type=section&id=Business%20and%20Markets%20Overview) DLH primarily serves U.S. federal agencies, with 99% of its revenue from this sector, and for the quarter ended March 31, 2023, the Department of Health and Human Services (HHS) and the Department of Veterans Affairs (VA) were the largest customers, accounting for 38.4% and 35.1% of revenue, respectively, while the acquisition of GRSi expanded capabilities and customer diversification, notably with the National Institutes of Health (NIH) and the U.S. Navy, and a key risk highlighted is that major VA CMOP contracts are currently operating under bridge contracts and are subject to recompete under a small business set-aside Revenue by Customer (Three Months Ended March 31) | Customer | 2023 Revenue % | 2022 Revenue % | | :--- | :--- | :--- | | Dept. of Health and Human Services | 38.4% | 25.4% | | Dept. of Veterans Affairs | 35.1% | 28.3% | | Dept. of Defense | 19.1% | 7.8% | | Dept. of Homeland Security | 0.1% | 36.8% | - Key VA contracts for pharmacy and logistics services, representing a combined **$68.6 million** in revenue for the six months ended March 31, 2023, are operating under bridge contracts through late 2023 and are expected to be recompeted as a service-disabled veteran owned small business (SDVOSB) set-aside[109](index=109&type=chunk)[110](index=110&type=chunk) [Results of Operations](index=30&type=section&id=Results%20of%20Operations) Comparing Q2 2023 to Q2 2022, revenue fell by $9.3 million to $99.4 million, primarily because prior-year results included $39.8 million from a completed FEMA contract, which was partially offset by a $32.6 million contribution from the newly acquired GRSi, while operating income decreased to $6.0 million from $10.3 million, impacted by the revenue mix change and increased G&A, depreciation, and amortization costs from the acquisition, and interest expense surged to $4.8 million from $0.6 million due to debt taken on to finance the GRSi purchase - For Q2 2023, revenue decreased by **$9.3 million**, due to the loss of **$39.8 million** from completed FEMA task orders, partially offset by a **$32.6 million** revenue contribution from the GRSi acquisition[128](index=128&type=chunk) - For the six months ended March 31, 2023, revenue decreased by **$89.3 million**, driven by the completion of FEMA task orders that contributed **$130.9 million** in the prior-year period, partially offset by a **$39.5 million** contribution from GRSi[136](index=136&type=chunk) - Interest expense for Q2 2023 increased to **$4.8 million** from **$0.6 million** in Q2 2022, primarily due to borrowing required to finance the GRSi acquisition[132](index=132&type=chunk) [Non-GAAP Financial Measures](index=32&type=section&id=Non-GAAP%20Financial%20Measures) The company provides non-GAAP metrics to illustrate underlying performance by excluding the impact of the short-term FEMA contract from 2022 and acquisition-related costs from 2023, showing that on an adjusted basis, Q2 2023 revenue grew 44.2% to $99.4 million from an adjusted $68.9 million in Q2 2022, and Adjusted EBITDA for Q2 2023 increased to $10.5 million (10.5% margin) from an adjusted $6.6 million (9.6% margin) in the prior year, demonstrating strong operational growth absent the one-time items Non-GAAP Reconciliation Highlights (in thousands) | Metric | Three Months Ended Mar 31, 2023 | Three Months Ended Mar 31, 2022 (Adjusted) | | :--- | :--- | :--- | | **Adjusted Revenue** | $99,417 | $68,935 | | **Adjusted Operating Income** | $5,951 | $4,729 | | **Adjusted EBITDA** | $10,486 | $6,610 | | **Adjusted EBITDA Margin** | 10.5% | 9.6% | - The adjustments remove the revenue and operating income from the FEMA task orders in fiscal 2022 and add back corporate development costs related to the GRSi acquisition in fiscal 2023 to provide a clearer comparison of ongoing operations[143](index=143&type=chunk)[146](index=146&type=chunk)[151](index=151&type=chunk) [Liquidity and Capital Management](index=35&type=section&id=Liquidity%20and%20capital%20management) As of March 31, 2023, the company's liquidity is sourced from operations and a $70.0 million secured revolving line of credit, of which $27.3 million was available, while the company's debt structure was significantly altered by the GRSi acquisition, with a new secured term loan of $182.9 million and a revolving credit balance of $21.3 million, and to mitigate interest rate risk on this new variable-rate debt, the company has executed floating-to-fixed interest rate swaps covering a notional amount of $112.2 million - The company has access to a **$70.0 million** secured revolving line of credit, with an outstanding balance of **$21.3 million** and available capacity of **$27.3 million** as of March 31, 2023[152](index=152&type=chunk) - The company executed an additional floating-to-fixed interest rate swap on January 31, 2023, with a notional amount of **$96.0 million**, bringing the total notional amount of all swaps to **$112.2 million**[157](index=157&type=chunk) Debt Obligations (in millions) | Facility | Balance as of Mar 31, 2023 | Interest Rate | | :--- | :--- | :--- | | Secured term loan | $182.9 | SOFR + 4.2% | | Secured revolving line of credit | $21.3 | SOFR + 4.2% | [Critical Accounting Policies and Estimates](index=36&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Management highlights key accounting policies that require significant estimates and judgment, including revenue recognition for government contracts (using cost-based input and time-based output methods), valuation of goodwill and intangible assets (reviewed annually for impairment), and accounting for stock-based compensation (using a Monte Carlo method for valuation), as these policies are crucial for accurately reporting the company's financial position and results - Revenue is recognized over time as control transfers to the customer, using cost-based input and time-based output methods depending on the contract type (time and materials, cost reimbursable, or firm fixed price)[162](index=162&type=chunk)[163](index=163&type=chunk) - Goodwill is reviewed for impairment at least annually, and the company concluded no impairment loss was warranted as of the reporting date[170](index=170&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risk is interest rate risk associated with its variable-rate debt, which it manages using floating-to-fixed interest rate swaps, with $112.2 million in notional value of swaps in place as of March 31, 2023, fixing the rate on a significant portion of the debt, and the company estimates that a 1.0% increase in the SOFR would impact its annual interest expense by approximately $0.9 million on the unhedged portion of its debt - The company has executed floating-to-fixed interest rate swaps with a total notional amount of **$112.2 million** to mitigate risk on its variable-rate debt[175](index=175&type=chunk) - A hypothetical **1.0%** increase in SOFR would increase the company's annual interest expense by approximately **$0.9 million**[176](index=176&type=chunk) [Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2023, and the company is currently in the process of integrating the internal controls of the recently acquired Grove Resource Solutions, LLC into its existing control environment - The CEO and CFO concluded that disclosure controls and procedures were effective at a reasonable assurance level as of the end of the reporting period[177](index=177&type=chunk) - The company is in the process of integrating the internal controls of the newly acquired Grove Resource Solutions, LLC[180](index=180&type=chunk) [Part II — Other Information](index=38&type=section&id=Part%20II%20%E2%80%94%20Other%20Information) [Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) The company is subject to various claims and legal actions in the ordinary course of business but is not aware of any pending or threatened litigation that is reasonably likely to have a material adverse effect on its financial results or position - 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[181](index=181&type=chunk) [Risk Factors](index=39&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes from the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended September 30, 2022, and the subsequent quarterly report - The company states that there have been no material changes from the risk factors described in its Annual Report on Form 10-K for the fiscal year ended September 30, 2022 and its Quarterly Report on Form 10-Q for the quarter ended December 31, 2022[182](index=182&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=39&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not issue any unregistered securities during the reporting period, except as previously reported - During the period, the Company did not issue any securities that were not registered under the Securities Act of 1933, as amended, except as has been reported in previous filings[183](index=183&type=chunk) [Defaults Upon Senior Securities](index=39&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) None - None[184](index=184&type=chunk) [Mine Safety Disclosures](index=39&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Not applicable - Not applicable[185](index=185&type=chunk) [Other Information](index=39&type=section&id=Item%205.%20Other%20Information) None - None[186](index=186&type=chunk) [Exhibits](index=40&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the report, including forms of restricted stock unit awards, CEO and CFO certifications, and iXBRL formatted financial data - Exhibits filed include forms for performance-based and time-based restricted stock unit awards, CEO/CFO certifications (**31.1, 31.2, 32**), and iXBRL data files (**101.0, 104.0**)[189](index=189&type=chunk)

DLH Holdings Corp. (NASDAQ:DLHC) Q1 2023 Earnings Conference Call February 9, 2023 10:00 AM ET Company Participants Chris Witty - IR Advisor Zach Parker - President, CEO Kathryn JohnBull - CFO Conference Call Participants Joe Gomes - Noble Capital Jeff Bronchick - Cove Street Capital Operator Hello and welcome to the DLH Holdings Fiscal 2023 First Quarter Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Chris Witty, ...

Part I — Financial Information [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) The unaudited consolidated financial statements for the three months ended December 31, 2022, reflect a significant year-over-year decline in revenue and net income, substantial asset and liability increases from the GRSi acquisition, and improved operating cash flow [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) Revenue for the three months ended December 31, 2022, sharply declined to $72.7 million from $152.8 million, primarily due to completed FEMA contracts, leading to a significant decrease in net income to $1.5 million Consolidated Statements of Operations (Unaudited) | Metric | Three Months Ended Dec 31, 2022 (in thousands) | Three Months Ended Dec 31, 2021 (in thousands) | | :--- | :--- | :--- | | **Revenue** | **$72,738** | **$152,801** | | Income from operations | $3,921 | $11,219 | | **Net income** | **$1,547** | **$7,804** | | Net income per share - basic | $0.12 | $0.61 | | Net income per share - diluted | $0.11 | $0.55 | [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) As of December 31, 2022, total assets increased to $367.3 million from $169.0 million, driven by the GRSi acquisition which added significant goodwill and intangible assets, while total liabilities sharply rose to $266.8 million from $77.0 million due to new debt Consolidated Balance Sheet Highlights (Unaudited) | Metric | Dec 31, 2022 (in thousands) | Sep 30, 2022 (in thousands) | | :--- | :--- | :--- | | **Total Assets** | **$367,328** | **$169,012** | | Goodwill | $139,277 | $65,643 | | Intangible assets, net | $136,729 | $40,884 | | **Total Liabilities** | **$266,819** | **$76,952** | | Debt obligations - long-term | $165,942 | $20,416 | | Total shareholders' equity | $100,509 | $92,060 | [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities for the three months ended December 31, 2022, significantly improved to $8.0 million from a $16.2 million use of cash, while $180.3 million was used in investing activities for the GRSi acquisition, funded by $173.5 million from financing activities Consolidated Cash Flow Summary (Unaudited) | Activity | Three Months Ended Dec 31, 2022 (in thousands) | Three Months Ended Dec 31, 2021 (in thousands) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $7,973 | $(16,155) | | Net cash used in investing activities | $(180,342) | $0 | | Net cash provided by (used in) financing activities | $173,505 | $(3,675) | | **Net change in cash** | **$1,136** | **$(19,830)** | [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed explanations of accounting policies and financial statement components, including the basis of presentation, revenue recognition, GRSi business combination specifics, new debt structure, lease obligations, and stock-based compensation plans - On December 8, 2022, the Company acquired **100%** of Grove Resource Solution, LLC (GRSi) for a net preliminary purchase price of **$185.1 million**. The acquisition was financed through **$178.1 million** in borrowings and **$7.0 million** in common stock[50](index=50&type=chunk) Preliminary Purchase Price Allocation for GRSi (in thousands) | Item | Amount | | :--- | :--- | | **Preliminary purchase price** | **$188,458** | | Total identifiable net assets acquired | $114,824 | | Intangible assets | $98,004 | | **Goodwill** | **$73,634** | - Following the acquisition, GRSi contributed approximately **$6.9 million** in revenue and **$0.3 million** in income from operations for the period from December 8 to December 31, 2022[55](index=55&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the **52.4%** year-over-year revenue decrease to the completion of a **$91.1 million** FEMA contract, while the GRSi acquisition significantly increased the company's backlog to **$942.7 million** and adjusted non-GAAP measures show underlying revenue growth and solid liquidity [Business and Markets Overview](index=24&type=section&id=Business%20and%20Markets%20Overview) DLH provides technology, cyber, and engineering solutions for federal health and human service initiatives, with **99%** of revenue from U.S. government agencies, and the VA and HHS became the largest customers this quarter, shifting from DHS in the prior year Revenue by Customer (in thousands) | Customer | Q1 FY2023 Revenue | Q1 FY2023 % | Q1 FY2022 Revenue | Q1 FY2022 % | | :--- | :--- | :--- | :--- | :--- | | Dept. of Veterans Affairs | $33,708 | 46.4% | $28,193 | 18.5% | | Dept. of Health and Human Services | $27,305 | 37.5% | $23,126 | 15.1% | | Dept. of Defense | $10,263 | 14.1% | $8,495 | 5.6% | | Dept. of Homeland Security | $167 | 0.2% | $91,328 | 59.8% | - The company's backlog increased substantially to **$942.7 million** at December 31, 2022, from **$482.5 million** at September 30, 2022, largely due to the GRSi acquisition[108](index=108&type=chunk) [Results of Operations](index=27&type=section&id=Results%20of%20Operations) Q1 FY2023 revenue decreased **52.4%** to **$72.7 million** from **$152.8 million**, primarily due to completed FEMA task orders, with operating income falling to **$3.9 million**, though non-GAAP adjustments show adjusted revenue and EBITDA growth - The primary reason for the **$80.1 million** revenue decrease was the completion of two FEMA task orders which contributed **$91.1 million** in revenue in the prior-year quarter[124](index=124&type=chunk) - Corporate development costs of **$1.7 million** were incurred in Q1 FY2023 related to the GRSi acquisition, with no comparable costs in the prior year[122](index=122&type=chunk)[127](index=127&type=chunk) - Interest expense increased to **$1.8 million** from **$0.7 million** year-over-year, primarily due to borrowing required to finance the GRSi acquisition[129](index=129&type=chunk) Non-GAAP Reconciliation Highlights (in thousands) | Metric | Q1 FY2023 | Q1 FY2022 | Change | | :--- | :--- | :--- | :--- | | **Revenue (GAAP)** | **$72,738** | **$152,801** | **$(80,063)** | | Less: Acquired/FEMA Revenue | $(6,878) | $(91,125) | - | | **Adjusted Revenue** | **$65,860** | **$61,676** | **$4,184** | | **Net Income (GAAP)** | **$1,547** | **$7,804** | **$(6,257)** | | **Adjusted Net Income** | **$3,575** | **$3,108** | **$467** | | **EBITDA (GAAP)** | **$6,323** | **$13,204** | **$(6,881)** | | **Adjusted EBITDA** | **$7,200** | **$6,858** | **$342** | [Liquidity and Capital Management](index=31&type=section&id=Liquidity%20and%20capital%20management) As of December 31, 2022, the company held **$1.4 million** in cash and access to a **$70.0 million** secured revolving line of credit with **$31.2 million** available, having financed the GRSi acquisition through new debt, resulting in a **$186.4 million** term loan and **$16.9 million** revolving credit balance - The company has a **$70.0 million** secured revolving line of credit, with an outstanding balance of **$16.9 million** and available capacity of **$31.2 million** as of December 31, 2022[143](index=143&type=chunk)[146](index=146&type=chunk) Debt Obligations as of Dec 31, 2022 (in millions) | Facility | Loan Balance | Interest Rate | Maturity Date | | :--- | :--- | :--- | :--- | | Secured term loan | $186.4 | SOFR + 4.2% | Dec 8, 2027 | | Secured revolving line of credit | $16.9 | SOFR + 4.2% | Dec 8, 2027 | [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=35&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company manages interest rate risk on its variable-rate debt using floating-to-fixed interest rate swaps, with a **$16.2 million** swap in place as of December 31, 2022, and a **1.0%** SOFR rate increase would raise annual interest expense by approximately **$0.9 million** - The company utilizes floating-to-fixed interest rate swaps to manage interest rate risk. As of the quarter-end, a swap with a notional amount of **$16.2 million** was in place. Post-quarter, this was increased to **$112.2 million**[166](index=166&type=chunk) - A hypothetical **1.0%** increase in the SOFR interest rate would increase the company's annual interest expense by approximately **$0.9 million**[167](index=167&type=chunk) [Item 4. Controls and Procedures](index=35&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of December 31, 2022, and the company is actively integrating the acquired GRSi business into its internal control environment - Disclosure controls and procedures were deemed effective at a reasonable assurance level as of the end of the period[168](index=168&type=chunk) - The company is in the process of integrating the acquired GRSi business into its internal control over financial reporting[171](index=171&type=chunk) Part II — Other Information [Item 1. Legal Proceedings](index=36&type=section&id=Item%201.%20Legal%20Proceedings) The company is subject to various claims and legal actions in the ordinary course of business but is not aware of any pending or threatened litigation likely to have a material adverse effect on its financial results or position - The Company is not aware of any pending or threatened litigation expected to have a material adverse effect on its operations, financial position, or cash flows[172](index=172&type=chunk) [Item 1A. Risk Factors](index=36&type=section&id=Item%201A.%20Risk%20Factors) This section highlights new risks from the GRSi acquisition, primarily increased indebtedness limiting operational flexibility and challenges in successfully integrating GRSi's operations, systems, and employees - The company incurred significant additional indebtedness to finance the GRSi acquisition, which could adversely affect the business by using a larger portion of cash flow for debt service and limiting operational flexibility[174](index=174&type=chunk) - The company faces potential difficulties in integrating GRSi's operations, which could result in the loss of key employees, disruption of ongoing business, and inconsistencies in systems and policies[175](index=175&type=chunk)[177](index=177&type=chunk) - There is a risk of being required to take write-downs, restructuring, or impairment charges related to the acquisition if due diligence did not uncover all material issues or if unexpected risks arise[179](index=179&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=37&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities during the period, though an employee surrendered **67,208 shares** of common stock in November 2022 to cover stock option exercise price and tax obligations - In November 2022, **67,208 shares** were repurchased by the company in connection with an employee stock option exercise, where the holder surrendered shares to pay the exercise price and taxes[181](index=181&type=chunk)[182](index=182&type=chunk) [Item 3. Defaults Upon Senior Securities](index=37&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) None reported [Item 4. Mine Safety Disclosures](index=37&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Not applicable [Item 5. Other Information](index=38&type=section&id=Item%205.%20Other%20Information) None reported [Item 6. Exhibits](index=39&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the report, including the Equity Purchase Agreement for the GRSi acquisition, the Second Amended and Restated Credit Agreement, and various officer certifications

DLH Holdings Corp. (NASDAQ:DLHC) Q4 2022 Results Conference Call December 5, 2022 10:00 AM ET Company Participants Chris Witty - IR Advisor Zach Parker - President, CEO Kathryn JohnBull - CFO Conference Call Participants Joe Gomes - Noble Capital Brian Kinstlinger - Alliance Global Partners Debra Fiakas - Crystal Equity Research Operator Good morning, and welcome to the DLH Holdings Fiscal 2022 Fourth Quarter Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I wou ...

Part I [Business](index=3&type=section&id=Item%201.%20Business) DLH Holdings Corp provides technology-enabled services to U.S. federal agencies, with FY2022 revenue growth driven by short-term FEMA contracts - DLH provides technology-enabled business process outsourcing, program management, and public health research and analytics to improve large-scale federal health and human services initiatives[14](index=14&type=chunk) Revenue by Customer (FY 2022 vs. FY 2021) | Customer | FY 2022 Revenue ($ thousands) | FY 2022 % of Total | FY 2021 Revenue ($ thousands) | FY 2021 % of Total | | :--- | :--- | :--- | :--- | :--- | | Department of Homeland Security | 126,576 | 32.0% | 2,485 | 1.0% | | Department of Veterans Affairs | 126,106 | 31.9% | 110,078 | 44.7% | | Department of Health and Human Services | 102,201 | 25.9% | 91,543 | 37.2% | | Department of Defense | 33,612 | 8.5% | 30,930 | 12.6% | | Other Customers | 6,678 | 1.7% | 11,058 | 4.5% | | **Total Revenue** | **395,173** | **100.0%** | **246,094** | **100.0%** | - The company's revenue is primarily from **time and materials contracts (78%)**, followed by cost-reimbursable contracts (12%) and firm-fixed-price contracts (10%)[19](index=19&type=chunk) - Two short-term FEMA task orders for COVID-19 support generated **$125.8 million in revenue** for fiscal year 2022, concluding in December 2021 and March 2022[38](index=38&type=chunk) Backlog Comparison (FY 2022 vs. FY 2021) | Backlog Type | Sept 30, 2022 ($ millions) | Sept 30, 2021 ($ millions) | | :--- | :--- | :--- | | Total Backlog | 482.5 | 651.5 | | Funded Backlog | 98.9 | 191.0 | [Risk Factors](index=8&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from its heavy reliance on U.S. government contracts, customer concentration, competition, and cybersecurity threats - The company derives **99% of its revenue from U.S. federal government agencies**, making it highly dependent on government contracts and vulnerable to changes in government spending[63](index=63&type=chunk) - A significant portion of revenue is concentrated in a small number of contracts with the **Department of Veterans Affairs (VA)** and **Department of Health and Human Services (HHS)**[65](index=65&type=chunk) - The U.S. government's preference for veteran-owned or small businesses could limit the company's ability to compete as a prime contractor[67](index=67&type=chunk)[68](index=68&type=chunk) - **Cybersecurity breaches** pose a significant risk, as the company's systems handle confidential and protected health information[107](index=107&type=chunk)[108](index=108&type=chunk) - The company's credit agreement contains financial covenants that could restrict operations or lead to default if not met[121](index=121&type=chunk) - Ownership is concentrated, with executive officers, directors, and the largest shareholder owning approximately **45% of outstanding common stock**[135](index=135&type=chunk) [Unresolved Staff Comments](index=21&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments[152](index=152&type=chunk) [Properties](index=21&type=section&id=Item%202.%20Properties) The company leases all its properties, with a total lease expense of approximately $3.5 million in fiscal year 2022 - The company does not own any real estate and operates out of leased facilities[153](index=153&type=chunk) - Total lease expense for the fiscal year ended September 30, 2022, was approximately **$3.5 million**[153](index=153&type=chunk) [Legal Proceedings](index=21&type=section&id=Item%203.%20Legal%20Proceedings) The company is not aware of any pending litigation expected to have a material adverse effect on its financial condition - 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[154](index=154&type=chunk) [Mine Safety Disclosure](index=21&type=section&id=Item%204.%20Mine%20Safety%20Disclosure) This section is not applicable to the company's business operations - Not applicable[155](index=155&type=chunk) Part II [Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities](index=22&type=section&id=Item%205.%20Market%20For%20the%20Registrant's%20Common%20Equity%2C%20Related%20Shareholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on Nasdaq under "DLHC," and it has never paid cash dividends - The company's common stock trades on The Nasdaq Capital Market under the symbol **"DLHC"**[158](index=158&type=chunk) - The company has not declared or paid any cash dividends on its common stock since inception and does not intend to in the foreseeable future[159](index=159&type=chunk) [Selected Financial Data](index=22&type=section&id=Item%206.%20Selected%20Financial%20Data) This section is intentionally reserved and contains no financial data - This section is intentionally left blank as it is marked "RESERVED"[163](index=163&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Fiscal year 2022 revenue and net income grew significantly due to FEMA contracts, while operating cash flow decreased due to prior year advance payments Consolidated Statement of Operations Summary (FY 2022 vs. FY 2021) | Metric ($ thousands) | FY 2022 | FY 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | 395,173 | 246,094 | 149,079 | 60.6% | | Income from operations | 33,278 | 17,223 | 16,055 | 93.2% | | Net income | 23,288 | 10,145 | 13,143 | 129.6% | | Diluted EPS | $1.64 | $0.75 | $0.89 | 118.7% | - The **$149.1 million (60.6%) increase in revenue** in FY2022 was primarily due to two FEMA task orders supporting COVID-19 response, which contributed **$125.8 million**[186](index=186&type=chunk) Non-GAAP EBITDA Reconciliation (FY 2022 vs. FY 2021) | Metric ($ thousands) | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Net income | 23,288 | 10,145 | | Interest expense | 2,215 | 3,784 | | Provision for income taxes | 7,775 | 3,294 | | Depreciation and amortization | 7,665 | 8,115 | | **EBITDA** | **40,943** | **25,338** | Cash Flow Summary (FY 2022 vs. FY 2021) | Cash Flow Activity ($ thousands) | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | 1,243 | 45,665 | | Net cash used in investing activities | (872) | (44) | | Net cash used in financing activities | (24,194) | (22,927) | | **Net change in cash** | **(23,823)** | **22,694** | - The decrease in cash from operations was principally a result of fulfilling deferred contract obligations on the FEMA task orders, for which an advance payment was received in fiscal 2021[204](index=204&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=32&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate fluctuation on its variable-rate debt, which is partially mitigated by an interest rate swap - The company's main market risk is **interest rate risk** from its variable-rate debt[231](index=231&type=chunk) - A floating-to-fixed interest rate swap with a notional amount of **$16.2 million** is used to mitigate this risk[231](index=231&type=chunk) - A hypothetical **1.0% increase in the LIBOR rate** would result in an approximate **$0.3 million** incremental impact to annual interest expense[231](index=231&type=chunk) [Financial Statements and Supplemental Data](index=32&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplemental%20Data) This section presents the audited consolidated financial statements, which received an unqualified opinion from the independent auditor - The independent auditor issued an **unqualified opinion** on the financial statements and the effectiveness of internal control over financial reporting[235](index=235&type=chunk) - The auditor identified two Critical Audit Matters: **Revenue Recognition** and **Workers' Compensation Claims Liabilities**[242](index=242&type=chunk)[243](index=243&type=chunk)[245](index=245&type=chunk) Consolidated Balance Sheet Highlights (As of Sept 30) | Account ($ thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Total Current Assets | 43,602 | 61,763 | | Total Assets | 169,012 | 197,170 | | Total Current Liabilities | 38,541 | 66,376 | | Total Liabilities | 76,952 | 131,562 | | Total Shareholders' Equity | 92,060 | 65,608 | - As of September 30, 2022, the company had **$22.0 million in long-term debt obligations**, a significant reduction from **$46.8 million** at the end of fiscal 2021[309](index=309&type=chunk)[311](index=311&type=chunk) [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=54&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no disagreements with its accountants on any accounting or financial disclosure matters - None[343](index=343&type=chunk) [Controls and Procedures](index=54&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls, procedures, and internal controls over financial reporting were effective - The CEO and CFO concluded that the company's disclosure controls and procedures were **effective** as of the end of the fiscal year[344](index=344&type=chunk) - Management concluded that the company's internal control over financial reporting was **effective** as of September 30, 2022, based on the COSO framework[348](index=348&type=chunk) - No changes in internal control over financial reporting occurred during the fourth quarter that materially affected, or are reasonably likely to materially affect, internal controls[351](index=351&type=chunk) [Other Information](index=55&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None[352](index=352&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=55&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This section is not applicable to the company - Not applicable[353](index=353&type=chunk) Part III [Directors, Executive Officers, Corporate Governance, Executive Compensation, Security Ownership, and Principal Accountant Fees](index=55&type=section&id=Items%2010-14) Required information for Items 10-14 is incorporated by reference from the company's forthcoming Proxy Statement - Information for Items 10, 11, 12, 13, and 14 is omitted from this report and will be included in the company's definitive Proxy Statement, to be filed separately[355](index=355&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=56&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements and all exhibits filed with the Form 10-K, including material contracts - This item contains a list of all financial statements, schedules, and exhibits filed with the Form 10-K[362](index=362&type=chunk)[365](index=365&type=chunk) [Form 10-K Summary](index=58&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company provides no summary for this item - None[372](index=372&type=chunk)