DLH(DLHC) - 2024 Q1 - Quarterly Report

Part I — Financial Information Financial Statements For the three months ended December 31, 2023, DLH Holdings Corp. reported revenue of $97.9 million, a 34.5% increase year-over-year, primarily driven by a recent acquisition, with net income rising to $2.2 million and diluted EPS increasing to $0.15 Consolidated Statements of Operations Revenue for the three months ended December 31, 2023, increased by 34.5% to $97.9 million, leading to a net income of $2.2 million and diluted earnings per share of $0.15, despite higher operating costs and increased interest expense due to acquisition-related financing Consolidated Statements of Operations (Unaudited, in thousands) | Metric | Three months ended Dec 31, 2023 | Three months ended Dec 31, 2022 | | :--- | :--- | :--- | | Revenue | $97,850 | $72,738 | | Income from operations | $6,819 | $3,921 | | Interest expense | $4,658 | $1,830 | | Net income | $2,151 | $1,547 | | Net income per share - basic | $0.15 | $0.12 | | Net income per share - diluted | $0.15 | $0.11 | Consolidated Balance Sheets As of December 31, 2023, total assets were $331.3 million, slightly decreasing from September 30, 2023, with total liabilities decreasing to $226.5 million primarily due to debt reduction, and shareholders' equity increasing to $104.8 million Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2023 (Unaudited) | Sep 30, 2023 | | :--- | :--- | :--- | | Total current assets | $58,624 | $62,401 | | Goodwill | $138,161 | $138,161 | | Intangible assets, net | $120,663 | $124,777 | | Total assets | $331,330 | $339,841 | | Total current liabilities | $58,057 | $64,787 | | Debt obligations - long-term | $151,870 | $155,147 | | Total liabilities | $226,528 | $237,402 | | Total shareholders' equity | $104,802 | $102,439 | Consolidated Statements of Cash Flows Net cash provided by operating activities for the three months ended December 31, 2023, was $5.1 million, a decrease from the prior year, while net cash used in financing activities was $5.0 million, primarily for debt repayment, resulting in a period-end cash balance of $0.1 million Cash Flow Summary (Unaudited, in thousands) | Cash Flow Activity | Three Months Ended Dec 31, 2023 | Three Months Ended Dec 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $5,071 | $7,973 | | Net cash used in investing activities | $(174) | $(180,342) | | Net cash (used in) provided by financing activities | $(4,981) | $173,505 | | Net change in cash | $(84) | $1,136 | | Cash - end of period | $131 | $1,364 | Notes to Consolidated Financial Statements The notes detail accounting policies, revenue concentration from U.S. government contracts, including 45.3% from HHS and 35.4% from VA, and confirm the company holds $168.0 million in net bank debt obligations while remaining in compliance with all loan covenants Revenue by Customer (in thousands) | Customer | Q1 FY2024 Revenue | Q1 FY2023 Revenue | | :--- | :--- | :--- | | Department of Health and Human Services | $44,297 | $27,305 | | Department of Veterans Affairs | $34,680 | $33,708 | | Department of Defense | $16,871 | $10,263 | | Other | $2,002 | $1,462 | | Total | $97,850 | $72,738 | - As of December 31, 2023, the company had total debt obligations of $174.4 million, consisting of a $159.0 million secured term loan and a $15.4 million balance on its secured revolving line of credit[65] - The company is in compliance with all loan covenants as of December 31, 2023, which include a minimum fixed charge coverage ratio and a maximum total leverage ratio[71] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 34.5% year-over-year revenue growth primarily to a December 2022 acquisition, with backlog at $653.5 million, key customers being HHS and VA, and EBITDA increasing to $11.1 million - The company delivers health and cyber readiness solutions for federal government customers, focusing on digital transformation, science research and development, and systems engineering[90] Backlog Summary (in millions) | Date | Total Backlog | Funded Backlog | | :--- | :--- | :--- | | December 31, 2023 | $653.5 | $132.3 | | September 30, 2023 | $704.8 | $169.9 | - Revenue for Q1 2024 increased by $25.1 million over the prior year, principally due to the December 2022 acquisition[119] Reconciliation of GAAP Net Income to EBITDA (Non-GAAP, in thousands) | Metric | Three Months Ended Dec 31, 2023 | Three Months Ended Dec 31, 2022 | | :--- | :--- | :--- | | Net income | $2,151 | $1,547 | | Interest expense, net | $4,658 | $1,830 | | Provision for income tax expense | $10 | $544 | | Depreciation and amortization | $4,253 | $2,402 | | EBITDA | $11,072 | $6,323 | Quantitative and Qualitative Disclosures about Market Risk The company manages interest rate risk from its variable-rate debt through $105 million in floating-to-fixed interest rate swaps, estimating a 1.0% SOFR increase would raise annual interest expense by approximately $0.7 million on unhedged debt - The company utilizes floating-to-fixed interest rate swaps to manage interest rate risk, with a total notional amount of $105 million at December 31, 2023[150] - A hypothetical 1.0% increase in the SOFR interest rate would increase the company's annual interest expense by approximately $0.7 million[151] Controls and Procedures As of December 31, 2023, the CEO and CFO concluded that disclosure controls and procedures were effective at a reasonable assurance level, with no material changes in internal control over financial reporting during the quarter - The CEO and CFO evaluated disclosure controls and procedures as of the end of the period and found them to be effective at a reasonable assurance level[152] - No changes in internal control over financial reporting occurred during the fiscal quarter ended December 31, 2023, that materially affected, or are reasonably likely to materially affect, internal controls[154] Part II — Other Information Legal Proceedings The company 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[155] Risk Factors 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, 2023 - 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, 2023[156] Unregistered Sales of Equity Securities and Use of Proceeds During the quarter, the company did not issue any unregistered securities, but 27,821 shares were surrendered by holders to cover the exercise price and tax obligations in connection with employee stock option exercises - In connection with the exercise of employee stock options during the quarter, holders surrendered a total of 27,821 shares of common stock to the company to pay for the exercise price and related taxes[158] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications required by the Sarbanes-Oxley Act, and the financial statements formatted in iXBRL - Exhibits filed with the report include CEO and CFO certifications pursuant to SEC rules (31.1, 31.2, 32) and financial data in iXBRL format (101.0)[165]