DLH(US:DLHC)2026-02-10 16:00Financial Data and Key Metrics Changes - The company reported revenue of $68.9 million for the first quarter, down from $90.8 million in the prior year, primarily due to the conversion of certain programs to small business set-aside contracts, resulting in an approximate $18 million decrease [10] - Adjusted EBITDA for the quarter was $6.5 million, compared to $9.9 million in the prior year, with a sequential improvement in adjusted EBITDA margin to 9.5% [11] - Free cash flow usage was approximately $4.8 million, an improvement from $12.1 million in the previous year, reflecting better management of receivables [12] Business Line Data and Key Metrics Changes - Revenue contraction was largely attributed to small business set-aside conversions, particularly from CMOP and Head Start programs [10] - The company is focused on expanding efficiencies and margins while managing costs related to the transition of contracts [11][12] Market Data and Key Metrics Changes - The company noted improved demand across core markets, particularly in defense and intelligence, driven by federal health agencies prioritizing system interoperability and cybersecurity [5] - The recent budget stability is expected to positively impact the company's organic growth initiatives [4][7] Company Strategy and Development Direction - The company is committed to three strategic pillars: digital transformation and cybersecurity, science research and development, and systems engineering and integration [7] - There is a focus on leveraging technology and innovative tools to enhance productivity and competitive positioning [5][8] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in exiting fiscal 2026 in a stronger position, supported by improved budget clarity and a broad portfolio of contract vehicles [7][9] - The management team emphasized the importance of maintaining a competitive indirect cost profile to support organic growth [28][29] Other Important Information - The company is actively working on deleveraging its balance sheet, with debt increasing to $136.6 million due to seasonal working capital requirements [12] - The management is optimistic about the future, expecting to convert 50%-55% of EBITDA generated during fiscal 2026 to reduce debt by year-end [13] Q&A Session Summary Question: What accounted for the remaining $4 million in revenue decline? - The decline was attributed to smaller impacts from DOGE initiatives and the completion of a USAID project [18][20] Question: Update on CMOP contracts and transition timing? - The company is in the wind-down phase for CMOP work, expecting a complete wrap-up by Q3 of the current fiscal year [25] Question: Were there costs associated with the recent cost reductions? - The costs of achieving reductions are reflected in Q1 results, impacting both the reduction in costs and the overall financials [30] Question: Insights on the bidding activity and market opportunities? - The company has seen a mix of bid opportunities, with some moving to vehicles where they are not prime, but remains optimistic about future stability in the market [34][39] Question: Who are the civilian clients and is there a focus on commercial jobs? - Civilian clients include federal agencies like NIH and CDC, with a small focus on commercial work through partnerships, but significant investment in this area is not planned [51][52]