DLH(DLHC) - 2025 Q3 - Quarterly Results

DLH Fiscal 2025 Third Quarter Results Management Discussion and Outlook DLH's management successfully preserved profit margins and maintained strong operating cash flow in the third quarter despite industry headwinds and a competitive landscape, anticipating robust bidding activity and growth in fiscal 2026 driven by increased defense spending, advanced technology integration, and public health initiatives - The company effectively navigated industry changes, preserving margin delivery and strong operating cash flow[5] - Management expects a return to robust bid activity and funding for fiscal 2026 and beyond, particularly in cybersecurity, digital transformation, and public health[5] - DLH believes it is well-positioned for medium and long-term growth due to anticipated increases in defense spending, a focus on advanced technologies, and an emphasis on public health issues[6] Q3 FY2025 Financial Performance The company reported a year-over-year decline in revenue to $83.3 million and net income to $0.3 million for the third quarter of fiscal 2025, primarily due to small business set-aside transitions and program timing Key Financial Highlights In Q3 FY2025, DLH's revenue was $83.3 million and net income was $0.3 million, both down from the prior year, yet the company generated strong cash flow, facilitating a significant $9.4 million debt reduction and maintaining a contract backlog of $555.3 million Q3 FY2025 vs Q3 FY2024 Key Metrics | Metric | Q3 FY2025 | Q3 FY2024 | | :--- | :--- | :--- | | Revenue | $83.3 million | $100.7 million | | Earnings | $0.3 million | $1.1 million | | Diluted EPS | $0.02 | $0.08 | | EBITDA | $8.1 million | $10.0 million | - Total debt was reduced by $9.4 million during the fiscal third quarter, from $151.7 million to $142.3 million[7] - Contract backlog was $555.3 million as of June 30, 2025, compared to $690.3 million as of September 30, 2024[7] Detailed Quarterly Results (Three Months Ended June 30, 2025) The $17.4 million year-over-year revenue decrease was specifically attributed to transitioned CMOP locations ($8.5M), unbundling of DoD contracts ($3.2M), and federal efficiency scope reductions ($2.2M), resulting in an operating margin contraction to 4.5% from 5.7%, despite a $1.1 million reduction in general and administrative expenses - The decline in revenue was primarily due to small business set-aside transitions, including lower revenue of approximately $8.5 million from CMOP locations, $3.2 million from unbundled DoD contracts, and $2.2 million from scope reductions[8] - Operating margin for Q3 FY2025 was 4.5%, down from 5.7% in the prior-year period. General and administrative expenses declined by $1.1 million year-over-year to $7.9 million[9] - Interest expense decreased to $3.5 million from $4.1 million in the prior-year period, reflecting lower outstanding debt[10] - Net income for Q3 FY2025 was $0.3 million, or $0.02 per diluted share, compared to $1.1 million, or $0.08 per diluted share, in Q3 FY2024[11] Financial Position and Backlog As of June 30, 2025, DLH reported total debt of $142.3 million, a notable reduction from $154.6 million at the start of the fiscal year, reflecting strong cash generation, with a total contract backlog of $555.3 million, comprising $92.3 million in funded backlog and $463.0 million in unfunded backlog Debt and Cash Position | Metric | June 30, 2025 | September 30, 2024 | | :--- | :--- | :--- | | Total Debt | $142.3 million | $154.6 million | | Cash | $0.2 million | $0.3 million | - The company anticipates it will convert 50-55% of EBITDA to debt reduction over the course of the full fiscal year[13] Contract Backlog as of June 30, 2025 | Backlog Type | Amount | | :--- | :--- | | Funded | $92.3 million | | Unfunded | $463.0 million | | Total | $555.3 million | Financial Statements This section presents the detailed unaudited consolidated financial statements for the three and nine months ended June 30, 2025, with comparative data for the same periods in 2024, including the Consolidated Statements of Operations, Consolidated Balance Sheets, and Consolidated Statements of Cash Flows Consolidated Statements of Operations For the third quarter of FY2025, DLH reported revenue of $83.3 million and net income of $0.3 million, while for the nine-month period, revenue was $263.3 million with a net income of $2.3 million, both periods showing a decline in revenue and profitability compared to the prior year Consolidated Statements of Operations (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Revenue | $83,343 | $100,694 | | Income from operations | $3,755 | $5,763 | | Net income | $289 | $1,139 | | Diluted EPS | $0.02 | $0.08 | | --- | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | Revenue | $263,337 | $299,551 | | Income from operations | $14,506 | $18,523 | | Net income | $2,281 | $5,102 | | Diluted EPS | $0.16 | $0.35 | Consolidated Balance Sheets As of June 30, 2025, the company's balance sheet showed total assets of $299.3 million and total liabilities of $185.6 million, resulting in total shareholders' equity of $113.7 million, an increase from $110.1 million at the end of fiscal 2024 Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 | September 30, 2024 | | :--- | :--- | :--- | | Total current assets | $49,587 | $52,957 | | 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 For the nine months ended June 30, 2025, DLH generated $12.5 million in net cash from operating activities, with net cash used in financing activities also at $12.5 million, primarily directed towards debt repayments, resulting in a slight net decrease in cash for the period Consolidated Cash Flow Highlights (Nine Months Ended, in thousands) | Metric | June 30, 2025 | 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 | Non-GAAP Financial Measures The company provides EBITDA, a non-GAAP measure, to supplement its financial results, reporting $8.1 million (9.7% of revenue) for Q3 FY2025 and $27.4 million for the nine-month period, with a full reconciliation from GAAP net income provided - The company uses EBITDA (defined as net income excluding depreciation and amortization, interest expense, and income tax) as a supplemental non-GAAP measure of performance[26] Reconciliation of Net Income to EBITDA (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net income | $289 | $1,139 | | EBITDA | $8,063 | $10,035 | | EBITDA as a % of revenue | 9.7% | 10.0% | | --- | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | Net income | $2,281 | $5,102 | | EBITDA | $27,386 | $31,292 | | EBITDA as a % of revenue | 10.4% | 10.4% |