DLH(DLHC) - 2022 Q4 - Annual Report

Part I Business 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] 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] - Two short-term FEMA task orders for COVID-19 support generated $125.8 million in revenue for fiscal year 2022, concluding in December 2021 and March 2022[38] Backlog Comparison (FY 2022 vs. FY 2021) | Backlog Type | Sept 30, 2022 ($ millions) | Sept 30, 2021 ($ millions) | | :--- | :--- | :--- | | Total Backlog | 482.5 | 651.5 | | Funded Backlog | 98.9 | 191.0 | Risk Factors 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] - 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] - 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][68] - Cybersecurity breaches pose a significant risk, as the company's systems handle confidential and protected health information[107][108] - The company's credit agreement contains financial covenants that could restrict operations or lead to default if not met[121] - Ownership is concentrated, with executive officers, directors, and the largest shareholder owning approximately 45% of outstanding common stock[135] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments[152] Properties 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] - Total lease expense for the fiscal year ended September 30, 2022, was approximately $3.5 million[153] Legal Proceedings The company is not aware of any pending litigation expected to have a material adverse effect on its financial condition - The Company is not aware of any pending or threatened litigation that it believes is reasonably likely to have a material adverse effect on its results of operations, financial position or cash flows[154] Mine Safety Disclosure This section is not applicable to the company's business operations - Not applicable[155] Part II Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "DLHC," and it has never paid cash dividends - The company's common stock trades on The Nasdaq Capital Market under the symbol "DLHC"[158] - The company has not declared or paid any cash dividends on its common stock since inception and does not intend to in the foreseeable future[159] Selected Financial Data This section is intentionally reserved and contains no financial data - This section is intentionally left blank as it is marked "RESERVED"[163] Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal year 2022 revenue and net income grew significantly due to FEMA contracts, while operating cash flow decreased due to prior year advance payments Consolidated Statement of Operations Summary (FY 2022 vs. FY 2021) | Metric ($ 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 $125.8 million[186] Non-GAAP EBITDA Reconciliation (FY 2022 vs. FY 2021) | Metric ($ 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] Quantitative and Qualitative Disclosures About Market Risk 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] - A floating-to-fixed interest rate swap with a notional amount of $16.2 million is used to mitigate this risk[231] - A hypothetical 1.0% increase in the LIBOR rate would result in an approximate $0.3 million incremental impact to annual interest expense[231] Financial Statements and Supplemental Data This section presents the audited consolidated financial statements, which received an unqualified opinion from the independent auditor - The independent auditor issued an unqualified opinion on the financial statements and the effectiveness of internal control over financial reporting[235] - The auditor identified two Critical Audit Matters: Revenue Recognition and Workers' Compensation Claims Liabilities[242][243][245] Consolidated Balance Sheet Highlights (As of Sept 30) | Account ($ 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][311] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no disagreements with its accountants on any accounting or financial disclosure matters - None[343] Controls and Procedures 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] - Management concluded that the company's internal control over financial reporting was effective as of September 30, 2022, based on the COSO framework[348] - 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] Other Information The company reports no other information for this item - None[352] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This section is not applicable to the company - Not applicable[353] Part III Directors, Executive Officers, Corporate Governance, Executive Compensation, Security Ownership, and Principal Accountant Fees 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] Part IV Exhibits and Financial Statement Schedules 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][365] Form 10-K Summary The company provides no summary for this item - None[372]