DLH Holdings Corp

Previous wording

We deliver services primarily through prime contracts awarded by the federal government through competitive bidding processes. We have a diverse mix of contract vehicles with various agencies of the federal government, which supports our overall corporate growth strategy. Our revenue is distributed to time and materials contracts (55.4%), firm fixed price contracts (23.9%), and cost reimbursable contracts (20.7%).

Current wording

We deliver services primarily through prime contracts awarded by the federal government through competitive bidding processes. We have a diverse mix of contract vehicles with various agencies of the federal government, which supports our overall corporate growth strategy. Our revenue is distributed to time and materials contracts (55.1%), firm fixed price contracts (24.7%), and cost reimbursable contracts (20.1%).

Previous wording

IT modernization and cyber security maturity are priority initiatives throughout our customer set. Our customers, including numerous institutes and centers within the National Institutes of Health ("NIH"), the Defense Health Agency ("DHA"), Tele-medicine and Advanced Technology Research Center ("TATRC"), and US Navy Naval Information Warfare Center ("NIWC"), rely on our information technology support to enable their vital missions. We work with these customers to reduce risk and build resilience to cyber and physical threats to the federal government’s infrastructure, providing the full spectrum of cyber capabilities, cryptographic and true cyber engineering, Certified Information Security Officer ("CISO") / Information System Security Officer ("ISSO") support, risk management frameworks, Continuity of Operations ("COOP") / Disaster Recovery, and enterprise infrastructure and cloud governance focused on designing and implementing zero trust architecture.

Current wording

IT modernization and cyber security maturity are priority initiatives throughout our customer set. Our customers, including numerous institutes and centers within the National Institutes of Health ("NIH"), the Defense Health Agency ("DHA"), Telemedicine and Advanced Technology Research Center ("TATRC"), and US Navy Naval Information Warfare Center ("NIWC"), rely on our information technology support to enable their vital missions. We work with these customers to reduce risk and build resilience to cyber and physical threats to the federal government’s infrastructure, providing the full spectrum of cyber capabilities, cryptographic and true cyber engineering, Certified Information Security Officer ("CISO") / Information System Security Officer ("ISSO") support, risk management frameworks, Continuity of Operations ("COOP") / Disaster Recovery, and enterprise infrastructure and cloud governance focused on designing and implementing zero trust architecture.

Previous wording

The revenue attributable to the VA was derived from 16 separate contracts covering the Company's performance of pharmacy and logistics services in support of the VA's Consolidated Mail Outpatient Pharmacy ("CMOP") program.

Current wording

The revenue attributable to the VA was derived from 8 separate task orders covering the Company's performance of pharmacy and logistics services in support of the VA's Consolidated Mail Outpatient Pharmacy ("CMOP") program.

Previous wording

•Nine orders for pharmacy services, which represent approximately $39.1 million and $39.4 million of revenues for the six months ended March 31, 2024 and 2023, respectively, and operated under a bridge contract through April 30, 2024.

Current wording

•Pharmacy services represents approximately $59.5 million and $60.6 million of revenues for the nine months ended June 30, 2024 and 2023, respectively, and operated under task orders effective through July 31, 2024.

Previous wording

•Seven orders for logistics services represent approximately $31.2 million and $29.2 million of revenues for the six months ended March 31, 2024 and 2023, respectively, and operated under a bridge contract through April 30, 2024.

Current wording

•Logistics services represents approximately $46.3 million and $43.7 million of revenues for the nine months ended June 30, 2024 and 2023, respectively, and operated under task orders effective through July 31, 2024.

Previous wording

•As discussed below, the Company has received a new Indefinite-Delivery Indefinite-Quantity ("IDIQ") contract to continue providing prime contractor services at all eight CMOP locations while the pending procurements are evaluated. The ceiling value of the IDIQ contract is $200.0 million with the initial tasking through July 31, 2024. These initial task orders provide adequate funding to support the expected service volume of approximately $35.0 million for the three month period. Additional task orders may be issued under this IDIQ contract until the end of its period of performance.

Current wording

In April 2024, the Company received a new Indefinite-Delivery Indefinite-Quantity ("IDIQ") contract to continue providing prime contractor services at all CMOP locations while the pending procurements are evaluated. The ceiling value of the IDIQ contract is $200.0 million with the initial tasking through July 31, 2024. The customer has indicated their intention to extend the current task orders to October 31, 2024 with the exception of the Chelmsford CMOP location. During the quarter, we were notified that the VA's decision to award the task order for the Chelmsford location to a service-disabled veteran owned small business (“SDVOSB”) that is unaffiliated with DLH has withstood a protest and has been formally awarded. As a result, for the Chelmsford location, the SDVOSB is expected to begin performing services on August 1, 2024. The revenue derived by DLH from its current prime contracts to perform services at this location represents less than 3% of its consolidated revenue for the nine months ended June 30, 2024.

Previous wording

Should the new contracts for performance of these services be awarded to a partner of DLH, the Company expects to continue to perform a significant amount of the contract’s volume of business as a subcontractor. Should the VA conclude that an award to an SDVOSB prime contractor is not in the best interest of the government, they may reissue a solicitation in an unrestricted competition. DLH believes that its service excellence over many years on the program would provide an advantage in any competition.

Current wording

Should the new contracts for performance of these services be awarded to a partner of DLH, the Company expects to continue to perform a significant amount of the contract’s volume of business as a subcontractor. Should the VA conclude that an award to an SDVOSB prime contractor is not in the best interest of the government, they may reissue a solicitation in an unrestricted competition. DLH believes that its service excellence over many years on the program continues to provide the company and its partners with competitive advantages in the ongoing solicitation.

Previous wording

At March 31, 2024, our backlog was approximately $736.2 million, of which $106.9 million was funded backlog. At September 30, 2023, our backlog was approximately $704.8 million, of which $169.9 million was funded backlog.

Current wording

At June 30, 2024, our backlog was approximately $670.5 million of which $141.5 million was funded backlog. At September 30, 2023, our backlog was approximately $704.8 million, of which $169.9 million was funded backlog.

Previous wording

Revenue increased $1.6 million for the three months ended March 31, 2024 over 2023, reflecting growth across the Company's programs, particularly in public health and IT services, offset in part by national security contracts converting to small business set-aside companies.

Current wording

Revenue decreased $1.5 million for the three months ended June 30, 2024 over 2023, reflecting growth across the Company's programs, particularly in public health and IT services, offset by contracts converting to small business set-aside companies.

Previous wording

Contract costs primarily include the costs associated with providing services to our customers. These costs are generally comprised of direct labor and associated fringe benefit costs, subcontract cost, other direct costs, and the related management and infrastructure costs. Contract costs increased $0.9 million for the three months ended March 31, 2024 over 2023, the increase was primarily due to the increase in revenue

Current wording

Contract costs primarily include the costs associated with providing services to our customers. These costs are generally comprised of direct labor and associated fringe benefit costs, subcontract cost, other direct costs, and the related management and infrastructure costs. Contract costs increased $0.7 million for the three months ended June 30, 2024 over 2023; the increase was primarily due to an increase in non-labor costs.

Previous wording

General and administrative costs are for those employees not directly providing services to our customers, to include but not limited to executive management, business development accounting, and human resources. These costs increased $1.0 million for the three months ended March 31, 2024 over 2023. As a percentage of revenue general administrative costs increased to 11.6% from 10.8%, the increase as a percentage of revenue was primarily due to increase in legal costs associated with customer procurements and strategic corporate planning costs.

Current wording

General and administrative costs are for those employees not directly providing services to our customers, to include but not limited to executive management, business development, accounting, and human resources. These costs decreased $0.9 million for the three months ended June 30, 2024 as compared to 2023. As a percentage of revenue general and administrative costs decreased to 9.0% from 9.7%, the decrease was primarily due to a decrease in episodic legal costs.

Previous wording

For the three months ended March 31, 2024, depreciation and amortization expense were approximately $0.1 million and $4.1 million, respectively, as compared to approximately $0.2 million and $4.3 million for the three months ended March 31, 2023, respectively.

Current wording

For the three months ended June 30, 2024, depreciation and amortization expense were approximately $0.2 million and $4.1 million, respectively, as compared to approximately $0.2 million and $4.1 million for the three months ended June 30, 2023, respectively.

Previous wording

Interest expense, net, includes interest expense on the Company's term loan and amortization of deferred financing costs on debt obligations. Interest expense decreased $0.6 million for the three months ended March 31, 2024 over 2023, primarily due to the prepayment of debt resulting in reduced interest payments.

Current wording

Interest expense, net, includes interest expense on the Company's term loan and amortization of deferred financing costs on debt obligations. Interest expense decreased $0.8 million for the three months ended June 30, 2024 over 2023, primarily due to the prepayment of debt resulting in reduced interest payments.

Previous wording

Provision for Income Tax Expense and Benefit

Current wording

Provision for Income Tax Expense

Previous wording

Provision for income tax expense and benefit decreased $1.0 million for the six months ended March 31, 2024 over 2023. The effective tax rate for the six months ended March 31, 2024 and 2023 was (1.3)% and 28.2%, respectively. The decrease in the tax provision is primarily due to the beneficial impact of stock based compensation expense as options are exercised..

Current wording

Provision for income tax expense increased $29.0 thousand for the three months ended June 30, 2024 over 2023. The effective tax rate for the three months ended June 30, 2024 and 2023 was 29.7% and 20.6%, respectively. The increase in the effective tax rate in the current fiscal quarter is primarily due to the beneficial impact of stock-based compensation expense as options were exercised in the same quarter in the prior fiscal year.

Previous wording

The following table summarizes results of operations for the six months ended March 31, 2024 and 2023 (in thousands except for per share amounts, and percentage of revenue):

Current wording

The following table summarizes results of operations for the nine months ended June 30, 2024 and 2023 (in thousands except for per share amounts, and percentage of revenue):

Previous wording

Contract costs primarily include the costs associated with providing services to our customers. These costs are generally comprised of direct labor and associated fringe benefit costs, subcontract cost, other direct costs, and the related management and infrastructure costs. Contract costs increased $22.7 million for the six months ended March 31, 2024 over 2023. The increase in costs is primarily due to increased revenue.

Current wording

Contract costs primarily include the costs associated with providing services to our customers. These costs are generally comprised of direct labor and associated fringe benefit costs, subcontract cost, other direct costs, and the related management and infrastructure costs. Contract costs increased $23.1 million for the nine months ended June 30, 2024 over 2023. The increase in costs is primarily due to increased revenue.

Previous wording

General and administrative costs are for those employees not directly providing services to our customers, to include but not limited to executive management, business development, accounting, and human resources. These costs increased $1.3 million for the six months ended March 31, 2024 over 2023. As a percentage of revenue general administrative costs decreased to 9.8% from 10.5%. The decrease was primarily due to increased operating leverage and timing of strategic corporate planning and business development expenses.

Current wording

General and administrative costs are for those employees not directly providing services to our customers, to include but not limited to executive management, business development, accounting, and human resources. These costs increased $0.8 million for the nine months ended June 30, 2024 over 2023. As a percentage of revenue, general and administrative costs decreased to 9.5% from 10.1%. The decrease was primarily due to increased operating leverage.

Previous wording

For the six months ended March 31, 2024, depreciation and amortization expense were approximately $0.3 million and $8.2 million, respectively, as compared to approximately $0.4 million and $6.5 million for the six months ended March 31, 2023, respectively.

Current wording

For the nine months ended June 30, 2024, depreciation and amortization expense were approximately $0.4 million and $12.3 million, respectively, as compared to approximately $0.6 million and $10.7 million for the nine months ended June 30, 2023, respectively.

Previous wording

Interest expense, net, includes interest expense on the Company's term loan and amortization of deferred financing costs on debt obligations. Interest expense increased $2.3 million for six months ended March 31, 2024 over 2023, primarily due to the borrowing required to finance the December 2022 acquisition.

Current wording

Interest expense, net, includes interest expense on the Company's term loan and amortization of deferred financing costs on debt obligations. Interest expense increased $1.5 million for nine months ended June 30, 2024 over 2023, primarily due to the borrowing required to finance the December 2022 acquisition.

Previous wording

Provision for income tax expense and benefit decreased $0.4 million for the three months ended March 31, 2024 over 2023. The effective tax rate for the three months ended March 31, 2024 and 2023 was (3.4)% and 32.1%, respectively. The decrease in the tax provision is primarily due to the beneficial impact of stock-based compensation expense as options are exercised.

Current wording

Provision for income tax expense decreased $0.9 million for the nine months ended June 30, 2024 over 2023. The effective tax rate for the nine months ended June 30, 2024 and 2023 was 7.8% and 24.4%, respectively. The decrease in the effective tax rate in the current fiscal year is primarily due to the beneficial impact of stock based compensation expense as options are exercised.

Previous wording

On a non-GAAP basis, Earnings Before Interest, Tax, Depreciation, and Amortization ("EBITDA") for the six months ended March 31, 2024 and 2023 was approximately $21.3 million and $16.8 million, respectively. The increase was principally due to the contribution of the December 2022 acquisition.

Current wording

On a non-GAAP basis, Earnings Before Interest, Tax, Depreciation, and Amortization ("EBITDA") for the nine months ended June 30, 2024 and 2023 was approximately $31.3 million and $28.2 million, respectively. The increase was principally due to the contribution of the December 2022 acquisition.

Previous wording

Cash flows provided by operating activities totaled approximately $10.3 million and $6.9 million for the six months ended March 31, 2024 and 2023, respectively. The increase in cash from operations was principally due to a improvement in the collection cycle for accounts receivable.

Current wording

Cash flows provided by operating activities totaled approximately $14.9 million and $15.0 million for the nine months ended June 30, 2024 and 2023, respectively.

Previous wording

Cash used in investing activities totaled $0.5 million and $181.2 million for the six months ended March 31, 2024 and 2023, respectively. The cash utilized in the prior fiscal year period was predominantly due to the December 2022 acquisition.

Current wording

Cash used in investing activities totaled $0.6 million and $181.3 million for the nine months ended June 30, 2024 and 2023, respectively. The cash utilized in the prior fiscal year period was predominantly due to the December 2022 acquisition.

Previous wording

Cash used in and provided by financing activities during the six months ended March 31, 2024 and 2023 were approximately $9.8 million and $174.2 million, respectively, was principally due to retiring outstanding term debt while in the six months ended March 31, 2023 the cash provided was to finance the December 2022 acquisition.

Current wording

Cash used in and provided by financing activities during the nine months ended June 30, 2024 and 2023 were approximately $14.1 million and $166.6 million, respectively. The cash used by financing activities was principally due to retiring of outstanding term debt in the nine months ended June 30, 2024. The cash provided financed the December 2022 acquisition in the nine months ended June 30, 2023.

Previous wording

As of March 31, 2024, our immediate sources of liquidity include cash of approximately $0.2 million, accounts receivable, and access to our secured revolving line of credit facility. This credit facility provides us with access of up to $70.0 million, subject to certain conditions including eligible accounts receivable. As of March 31, 2024, we had unused borrowing capacity of $22.5 million, which is net of outstanding letters of credit. The Company's present operating liabilities are largely predictable and consist of vendor and payroll related obligations. We believe that our current investment and financing obligations are adequately covered by cash generated from profitable operations and that planned operating cash flow should be sufficient to support our operations for twelve months from the date of issuance of these consolidated financial statements.

Current wording

As of June 30, 2024, our immediate sources of liquidity include cash of approximately $0.4 million, accounts receivable, and access to our secured revolving line of credit facility. This credit facility provides us with access of up to $70.0 million, subject to certain conditions including eligible accounts receivable. As of June 30, 2024, we had unused borrowing capacity of $24.0 million, which is net of outstanding letters of credit. The Company's present operating liabilities are largely predictable and consist of vendor and payroll related obligations. We believe that our current investment and financing obligations are adequately covered by cash generated from profitable operations and that planned operating cash flow should be sufficient to support our operations for twelve months from the date of issuance of these consolidated financial statements.

Previous wording

On September 19, 2019, we executed a floating-to-fixed interest rate swap with First National Bank ("FNB") as counter party. The swap has a notional of $9.0 million at March 31, 2024, a fixed interest rate of 1.61% and a maturity date of June 7, 2024. On January 31, 2023, we executed an additional floating-to-fixed interest rate swap with FNB which has a notional amount of$80.0 million at March 31, 2024, a fixed interest rate is 4.10% and a maturity date of January 31, 2026. As a result of entering these agreements, for the six months ended March 31, 2024, interest expense has been decreased by approximately $0.7 million.

Current wording

On January 31, 2023, we executed a floating-to-fixed interest rate swap with FNB which has a notional amount of$80.0 million at June 30, 2024, a fixed interest rate is 4.10% and a maturity date of January 31, 2026. As a result of entering these agreements, for the nine months ended June 30, 2024, interest expense has been decreased by approximately $1.0 million.

Previous wording

(b) The secured revolving line of credit has a ceiling of up to $70.0 million and a maturity date of December 8, 2027. The Company has accessed funds from the revolving credit facility during the quarter and has a balance outstanding at March 31, 2024 of $14.0 million

Current wording

(b) The secured revolving line of credit has a ceiling of up to $70.0 million and a maturity date of December 8, 2027. The Company has accessed funds from the revolving credit facility during the quarter and has a balance outstanding at June 30, 2024 of $14.5 million