
PART I FINANCIAL INFORMATION Financial Statements (Unaudited) Unaudited financial statements for Q2 and YTD 2025 reflect decreased revenue and net income, with total assets and liabilities declining while operating cash flow remained positive Consolidated Statements of Operations Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2025 ($) | Three Months Ended June 30, 2024 ($) | Nine Months Ended June 30, 2025 ($) | Nine Months Ended June 30, 2024 ($) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $83,343 | $100,694 | $263,337 | $299,551 | | Income from operations | $3,755 | $5,763 | $14,506 | $18,523 | | Net income | $289 | $1,139 | $2,281 | $5,102 | | Net income per share - diluted | $0.02 | $0.08 | $0.16 | $0.35 | - Revenue for the three and nine months ended June 30, 2025, decreased by 17.2% and 12.1% year-over-year, respectively, with net income seeing a significant decline for both periods9 Consolidated Balance Sheets Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 ($) | September 30, 2024 ($) | | :--- | :--- | :--- | | Total current assets | $49,587 | $52,957 | | Goodwill | $138,161 | $138,161 | | Total assets | $299,341 | $314,381 | | Total current liabilities | $45,823 | $53,242 | | Total liabilities | $185,643 | $204,249 | | Total shareholders' equity | $113,698 | $110,132 | Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Nine Months Ended June 30, 2025 ($) | Nine Months Ended June 30, 2024 ($) | | :--- | :--- | :--- | | Net cash provided by operating activities | $12,536 | $14,931 | | Net cash used in investing activities | ($213) | ($627) | | Net cash used in financing activities | ($12,471) | ($14,096) | | Net change in cash | ($148) | $208 | Notes to Consolidated Financial Statements - A goodwill impairment assessment was triggered by a decrease in the Company's share price and market capitalization, but a subsequent quantitative assessment indicated goodwill was not impaired as of June 30, 202535 - The company's revenue is primarily derived from U.S. government agencies, with major customers being the Department of Health and Human Services (49.3%), Department of Veterans Affairs (34.1%), and Department of Defense (15.5%) for the nine months ended June 30, 202554107 Debt Obligations (in thousands) | Debt Component | June 30, 2025 ($) | September 30, 2024 ($) | | :--- | :--- | :--- | | Secured term loan | $128,250 | $142,500 | | Secured revolving line of credit | $14,039 | $12,058 | | Net bank debt obligations | $138,348 | $149,374 | - The Company utilizes a floating-to-fixed interest rate swap with a notional amount of $74.0 million to manage interest rate risk on its variable debt, which decreased interest expense by approximately $0.2 million for the nine months ended June 30, 202573 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management attributes revenue and profitability declines to contract conversions, with backlog decreasing and operating cash flow positive Major Customers and Contracts - The company's revenue is highly concentrated with three major U.S. Federal government customers: Department of Health and Human Services (49.3%), Department of Veterans Affairs (34.1%), and Department of Defense (15.5%) for the nine months ended June 30, 2025107 - The VA's Consolidated Mail Outpatient Pharmacy (CMOP) program is undergoing a transition to service-disabled veteran-owned small business (SDVOSB) prime contractors, and DLH has ceased or expects to cease operations at three locations as they transition to new contractors109110121 Backlog Backlog Summary (in millions) | Date | Total Backlog ($M) | Funded Backlog ($M) | | :--- | :--- | :--- | | June 30, 2025 | $555.3 | $92.3 | | September 30, 2024 | $690.3 | $155.1 | Results of Operations - For the three months ended June 30, 2025, revenue decreased by $17.4 million year-over-year, primarily due to the conversion of certain VA and DOD contracts to small business contractors123 - For the nine months ended June 30, 2025, revenue decreased by $36.2 million year-over-year for the same reasons, partially offset by new contract awards130 - Interest expense decreased for both the three and nine-month periods due to debt prepayments and a lower floating interest rate127134 Non-GAAP Financial Measures Reconciliation of Net Income to EBITDA (in thousands) | Metric | Three Months Ended June 30, 2025 ($) | Three Months Ended June 30, 2024 ($) | Nine Months Ended June 30, 2025 ($) | Nine Months Ended June 30, 2024 ($) | | :--- | :--- | :--- | :--- | :--- | | Net income | $289 | $1,139 | $2,281 | $5,102 | | EBITDA | $8,063 | $10,035 | $27,386 | $31,292 | - EBITDA decreased to $27.4 million for the nine months ended June 30, 2025, from $31.3 million in the prior year period, primarily due to lower revenue volume137 Liquidity and Capital Management - Net cash provided by operating activities was $12.5 million for the nine months ended June 30, 2025, a decrease from $14.9 million in the prior year, mainly due to lower revenue volume141 - As of June 30, 2025, the company had $0.2 million in cash and $15.1 million of available borrowing capacity under its revolving credit facility140143 Quantitative and Qualitative Disclosures About Market Risk The company manages variable-rate debt interest risk with a $74.0 million floating-to-fixed swap, leaving remaining debt exposed to floating rates - A 1.0% increase in the SOFR would impact annual interest expense by approximately $0.7 million on the unhedged portion of the company's debt155 Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - Management evaluated disclosure controls and procedures and found them to be effective at a reasonable assurance level156 - No changes in internal control over financial reporting occurred during the fiscal quarter that materially affected, or are reasonably likely to materially affect, internal controls159 PART II OTHER INFORMATION Legal Proceedings The company is not aware of any pending or threatened litigation expected to have a material adverse effect on its financial condition or operations - The Company is not aware of any pending or threatened litigation expected to have a material adverse effect on its financials160 Risk Factors No material changes to risk factors from those disclosed in the Annual Report on Form 10-K for the fiscal year ended September 30, 2024 - No material changes have occurred from the risk factors described in the Annual Report on Form 10-K for the fiscal year ended September 30, 2024161 Unregistered Sales of Equity Securities and Use of Proceeds The company did not issue any unregistered equity securities during the reporting period Defaults Upon Senior Securities No defaults upon senior securities occurred during the reporting period Mine Safety Disclosures Mine safety disclosures are not applicable to the company's operations Other Information No Rule 10b5-1 trading arrangements were adopted or terminated by directors or officers during the quarter Exhibits This section details the exhibits filed with the report, including CEO/CFO certifications and iXBRL financial data files