DLH Holdings Corp.
For the period ended Mar 31, 2025. Filed May 9, 2025.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Mar 31, 2025 · Filed May 9, 2025
DLHC$3.61-0.6%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-12-31; filed 2025-02-05.
0000785557-25-000016
ITEM 2. : MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSCurrent report: 10-Q
Period ended 2025-03-31; filed 2025-05-09.
0000785557-25-000053
ITEM 2. : MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 91 previous paragraphs and 105 current paragraphs.
63 unchanged; 23 reworded; 14 added; 5 removed; 0 previous and 5 current paragraphs rearranged.
Tables are not compared: 6 previous and 7 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (14)
Current report
We were awarded new task orders under this IDIQ contract for the remaining six locations with varying periods of performance. The task order for the Leavenworth, Kansas location has an end date of August 31, 2025. The remaining five locations have task orders with periods of performance through October 2025. To continue ordering services after expiration of the current task orders, the VA would need to award a new bridge contract. With respect to the six locations that DLH continues to operate, the VA has solicitations to evaluate for three locations. For the remaining three locations, the VA has not yet assigned a proposal due date for the solicitation. Until the VA has completed its procurement processes, we expect to continue providing pharmacy and logistics services at the locations we currently manage. DLH intends to provide additional updates to the progression of these solicitations as a part of its regular quarterly and annual filings.
Current report
On May 2, 2025, the White House released its recommendations for discretionary funding levels for fiscal year 2026. The "skinny budget" provides an outline about the administration's policies and priorities and recommendations for fiscal 2026 budgets by department and agency. While the budget offered additional detail, the major themes are consistent with information the administration has already released in public media. In total the administration is recommending a 7.6% reduction in discretionary spending as compared to fiscal 2025 budget levels. The recommendation essentially offset growth in the defense budget with reductions in non-defense budgets, particularly those related to international, climate, health and housing programs that are not aligned with administration policies. Several of our key customers have been recommended to receive an increase in their discretionary spending, in particular the DOD and VA. HHS was recommended to receive a decrease in its budget, while enhancing its focus on administration priorities such as battling chronic diseases, promoting healthy lifestyles, and emerging and infectious disease surveillance.
Current report
As we continue to align the Company’s capabilities with well-funded budget priorities and the budgetary environment discussed above, we believe we are well positioned to win new business in our large addressable market. Additional factors that could affect federal government spending in our addressable market include changes in set-asides for small businesses, changes in budgetary priorities associated with the new administration, and the effect of initiatives such as the Department of Government Efficiency (DOGE), on limiting or reducing federal government spending in general. Further, the changing priorities of the new administration may have an adverse impact on our results and, as such new priorities are implemented, it may be difficult for us to accurately predict the effect they will have on our results.
Current report
Revenue
Current report
Revenue decreased $18.9 million for the six months ended March 31, 2025 over 2024, primarily reflecting the conversion of certain contracts in our VA and DOD portfolios to small business contractors. The revenue decrease from small business conversion was partially offset by contributions from new contract awards.
Current report
Cost of Operations
Current report
For the six months ended March 31, 2025, depreciation and amortization expense were approximately $0.3 million and $8.2 million, respectively, as compared to approximately $0.3 million and $8.2 million for the six months ended March 31, 2024, respectively.
Current report
Interest Expense, net
Current report
Provision for Income Tax Expense
Current report
Goodwill Impairment Testing
Current report
The qualitative assessment of goodwill at March 31, 2025 determined a triggering event occurred requiring that we conduct additional quantitative analyses. The triggering event was primarily due to the decrease in the Company's share price during the latter half of the fiscal 2025 second quarter resulting in a decline in market capitalization. Management's assessment was that the market capitalization at the end of the second quarter was not indicative of the Company's fair value.
Current report
The Company performed a quantitative assessment to determine its fair value. The quantitative assessment blended multiple methods so as to have a reasonable and complete assessment of fair value. The methods used included both market and income-based approaches with all methods utilizing publicly available information in their respective calculations. Management assessed the relevance and reliability of the information utilized in each method. Significant estimates in the market-based method included identifying similar companies with comparable business factors such as service offerings, customers, size, growth, profitability, risk and return on investment, as well as assessing comparable market multiples in estimating the fair value of the Company. The income-based method is a discounted cash flow analysis and the significant estimates included expected growth rates, profitability and the weighted average cost of capital.
Current report
For the market-based methods, the Company used the average market capitalization over the current quarter with the inclusion of a control premium as one estimation of fair value. The other market-based method used publicly available market multiples of relevant publicly traded companies applied to our expected EBITDA and revenue for fiscal 2025 to estimate the Company's fair value. For the income-based method, the Company calculated its expected future cash flows. Those cash flows were then discounted to present value using a weighted average cost of capital. The weighted average of the three assessments indicated that the Company's fair value was greater than its book equity value.
Current report
As a result of these quantitative assessments, the Company determined that its goodwill was not impaired at the end of the quarter. Management will continue to evaluate market conditions and perform qualitative interim assessments to determine if a triggering event has occurred. Should a triggering event occur, the Company will perform a quantitative assessment to estimate fair value.
Removed paragraphs (5)
Previous report
•For the quarter, we operated under the task orders issued at the close of fiscal 2024. Those task orders had varying durations up to four months. The task order for our Hines, Illinois location ended on January 31, 2025 as the site transitions to a new service-disabled veteran owned small business (“SDVOSB”) prime contractor. The task orders for the remaining six sites are expected to be extended to April 30, 2025. As discussed below, further extensions may be requested by the VA.
Previous report
During the quarter ended June 30, 2024, the VA issued amendments to the requests for proposals for the seven remaining CMOP locations, which continue to give preference to an SDVOSB as a prime contractor. The amendments required a current or potentially new bidder to respond to the solicitations' changes with a compliant proposal. As with all proposal opportunities, DLH evaluated the revised CMOP requests for proposal for suitability of terms and conditions. As a result, we elected to not pursue certain opportunities at select locations.
Previous report
Proposals were due for four of the seven locations during the quarter ended September 30, 2024. The remaining three locations have not yet had their proposal due dates assigned. While the acquisition and transition process is being conducted, DLH continues to operate as the prime contractor for all seven CMOP locations that it currently manages. DLH intends to provide additional updates to the progression of these solicitations as a part of its regular quarterly and annual filings.
Previous report
Our mission is to expand our position as a trusted provider of technology-powered health and readiness services and solutions to active duty personnel, veterans, and civilian populations and communities. These services and solutions are derived from three capabilities sets: Digital Transformation and Cybersecurity, Systems Engineering and Integration and Science Research and Development. Within these capabilities, our scientists and technology professionals provide solutions spanning robotic process automation, cloud migration and computing, enterprise IT systems management, modeling & simulation, data analytics and scientific research. We believe business development priorities in these areas will position the Company to expand within top national priority programs and funded areas.
Previous report
On December 20, the U.S. House and Senate passed a Continuing Resolution ("CR") to extend federal spending through March 14, 2025. Under this CR, Federal agencies will continue to operate at fiscal 2024 levels. When a CR expires, unless new appropriations bills have been passed by Congress and signed by the President, or a new CR is passed and signed into law, the government must cease operations, or shutdown, except in certain emergency situations or when the law authorizes continued activity. We are monitoring the impact the new Presidential Administration will have on government funding negotiations as their legislative and political priorities. We continuously review our operations in an attempt to identify programs potentially at risk from CRs so that we can consider appropriate contingency plans. Historically, our customers’ missions have received bipartisan support from the legislative and executive branches of the federal government. However, as the new administration and new Congress will seek to implement their budget priorities, and policies, we will continue to monitor the process for opportunities and impacts to our customers’ projects and budgets.
Reworded paragraphs (23)
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 (54.4%), firm fixed price contracts (25.6%), and cost reimbursable contracts (20.0%).
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 (53.1%), firm fixed price contracts (25.9%), and cost reimbursable contracts (21.0%).
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"), Telemedicine and Advanced Technology Research Center ("TATRC"), and US Navy, 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"), US Army Medical Research & Development Command ("MRDC"), and US Navy, 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
Our employees support innovative, cutting-edge research on emerging trends, health informatics analyses, and application of best practices including mobile, social, and interactive media. We leverage evidence-based methods and web technology to drive health equity to our most vulnerable populations through public engagement. Projects often involve highly specialized expertise and transformative R&D support services. Our decades of experience designing, conducting, and analyzing studies for our diverse customer base, and our full-service clinical research solutions are designed for each customer’s specific research development program. Our employees provide expert knowledge and experience that supports our customers’ missions.
Current wording
Our employees support innovative, cutting-edge research on emerging trends, health informatics analyses, and application of best practices including mobile, social, and interactive media. We leverage evidence-based methods and web technology to drive health equity to our most vulnerable populations through public engagement. Projects often involve highly specialized expertise and transformative R&D support services. Our decades of experience designing, conducting, and analyzing studies for our diverse customer base, and our full-service clinical research solutions are designed for each customer’s specific research and development program. Our employees provide expert knowledge and experience that supports the missions of our customers’.
Previous wording
•CMOP pharmacy and logistic services represent approximately $34.1 million and $34.7 million of revenues for the quarter ended December 31, 2024 and 2023, respectively.
Current wording
•CMOP pharmacy and logistic services represent approximately $62.8 million and $70.3 million of revenues for the six months ended March 31, 2025 and 2024, respectively.
Previous wording
In connection with DLH’s continuing performance as the prime contractor during the VA's ongoing acquisition evaluation, the VA awarded us a sole-source Indefinite Quantity/Indefinite Delivery ("IDIQ") contract effective May 1, 2024. The IDIQ has a ceiling value of $200.0 million and a maximum period of performance through April 30, 2025, with the potential for orders placed within that period to extend performance beyond April 2025. The seven locations where we continue to provide services are under task orders awarded through this vehicle.
Current wording
As previously disclosed, the VA issued solicitations for performance of the CMOP program by separate contracts for each of its eight locations, with the awards limited to service-disabled veteran owned small business (“SDVOSB”) prime contractors. As that ongoing acquisition evaluation is occurring, DLH continues performance as the prime contractor under a sole-source Indefinite Quantity/Indefinite Delivery ("IDIQ") contract effective May 1, 2024. The IDIQ initially had ceiling value of $200.0 million, and the ceiling value was increased by $50 million to $250 million in April 2025. It also has a maximum ordering period through April 30, 2025, with the potential for orders placed within that period to extend performance beyond April 2025. To date, VA has transitioned performance for two locations: Chelmsford, Massachusetts (July 31, 2024) and Hines, Illinois (January 31, 2025).
Previous wording
At December 31, 2024, our backlog was approximately $665.3 million of which $135.2 million was funded backlog. At September 30, 2024, our backlog was approximately $690.3 million, of which $155.1 million was funded backlog.
Current wording
At March 31, 2025, our backlog was approximately $646.9 million of which $106.2 million was funded backlog. At September 30, 2024, our backlog was approximately $690.3 million, of which $155.1 million was funded backlog.
Previous wording
During the quarter ended December 31, 2024, we generated revenues of approximately $34.1 million from our set of contracts in support of the VA's CMOP program. As previously reported, the VA has been soliciting proposals for new contracts covering this work with a preference for a Service-Disabled Veteran Owned Small Business, or SDVOSB, to perform as the prime contractor. To date, the VA has awarded two locations to a new SDVOSB prime contractor. The remaining six locations continue to be operated by DLH as the prime contractor. Should awards for the locations for which we have submitted a proposal be offered to a partner of DLH, we expect to continue to perform a significant amount of those contracts' volume of business as a subcontractor.
Current wording
During the six months ended March 31, 2025, we generated revenues of approximately $62.8 million from our set of contracts in support of the VA's CMOP program. As previously reported, the VA has been soliciting proposals for new contracts covering this work with a preference for a Service-Disabled Veteran Owned Small Business, or SDVOSB, to perform as the prime contractor. To date, the VA has awarded two locations to a new SDVOSB prime contractor. The remaining six locations continue to be operated by DLH as the prime contractor. Should awards for the locations for which we have submitted a proposal be offered to a partner of DLH, we expect to continue to perform a significant amount of those contracts' volume of business as a subcontractor.
Previous wording
Revenue decreased $7.1 million for the three months ended December 31, 2024 over 2023, primarily reflecting the conversion of certain contracts in our VA and DOD portfolios to small business contractors.
Current wording
Revenue decreased $11.8 million for the three months ended March 31, 2025 over 2024, primarily reflecting the conversion of certain contracts in our VA and DOD portfolios to small business contractors. The revenue decrease from small business conversion was partially offset by contributions from new contract awards.
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 $0.8 million for the three months ended December 31, 2024 as compared to 2023. As a percentage of revenue, general and administrative costs increased to 9.3% from 7.9%, with the increase being primarily due to an increase in 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 decreased $3.1 million for the three months ended March 31, 2025 as compared to 2024. As a percentage of revenue, general and administrative costs decreased to 9.7% from 11.6%, with the decrease primarily due to reducing support costs proportionally with the change in revenue volume.
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 $0.5 million for the three months ended December 31, 2024 over 2023, primarily due to the prepayment of debt and a decrease in the floating interest rate.
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 $0.3 million for the three months ended March 31, 2025 over 2024, primarily due to the prepayment of debt and a decrease in the floating interest rate.
Previous wording
Provision for income tax expense increased $379.0 thousand for the three months ended December 31, 2024 over 2023. The effective tax rate for the three months ended December 31, 2024 and 2023 was 25.9% and 0.4%, respectively. The tax provision from the prior year period was positively impacted by the exercise of non-qualifying stock options.
Current wording
Provision for income tax expense increased $0.4 million for the three months ended March 31, 2025 over 2024. The effective tax rate for the three months ended March 31, 2025 and 2024 was 29.1% and (3.4)%, respectively. The tax provision from the prior year period was positively impacted by the exercise of non-qualifying stock options.
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 decreased $6.7 million for the three months ended December 31, 2024 over 2023; the decrease was primarily due to a decrease in revenue volume from low margin non-labor costs and a decrease in our overhead costs.
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 decreased $14.6 million for the six months ended March 31, 2025 and 2024. The decrease was primarily due to a decrease in revenue volume from low margin non-labor costs and a decrease in our overhead costs.
Previous wording
On a non-GAAP basis, EBITDA for the three months ended December 31, 2024 and 2023 was approximately $9.9 million and $11.1 million, respectively. The decrease was primarily due to the decrease in revenue volume driven by conversion of certain VA and DoD contracts to small business contractors.
Current wording
On a non-GAAP basis, EBITDA for the six months ended March 31, 2025 and 2024 was approximately $19.3 million and $21.3 million, respectively. The decrease was primarily due to the decrease in revenue volume driven by conversion of certain VA and DoD contracts to small business contractors, partially offset by revenue from new contract awards.
Previous wording
Cash was approximately $0.5 million and $0.3 million for the period ended December 31, 2024 and September 30, 2024, respectively.
Current wording
Cash was approximately $0.2 million and $0.3 million for the periods ended March 31, 2025 and September 30, 2024, respectively.
Previous wording
Available borrowings under our revolving credit facility was approximately $11.8 million and $18.1 million for the period ended December 31, 2024 and September 30, 2024, respectively. The decrease is primarily due to increased borrowing under the revolving credit facility for the period ended December 31, 2024.
Current wording
Available borrowings under our revolving credit facility was approximately $19.8 million and $18.1 million for the periods ended March 31, 2025 and September 30, 2024, respectively. The increase is primarily due to repayments of the revolving credit facility for the period ended March 31, 2025.
Previous wording
Cash flows used in and provided by operating activities totaled approximately $(11.5) million and $5.1 million for the three months ended December 31, 2024 and 2023, respectively. The decrease in cash from operations was principally due to an increase in accounts receivable due to a short-term decrease in collections.
Current wording
Cash flows provided by operating activities totaled approximately $3.0 million and $10.3 million for the six months ended March 31, 2025 and 2024, respectively. The decrease in cash provided by operating activities is primarily due to a decrease in revenue volume as compared to the prior year.
Previous wording
Cash used in investing activities totaled $(0.6) million and $(0.2) million for the three months ended December 31, 2024 and 2023, respectively. The cash utilized was predominantly due capital expenditures in the three months ended December 31, 2024 and 2023, respectively.
Current wording
Cash used in investing activities totaled $1.0 thousand and $465.7 thousand for the six months ended March 31, 2025 and 2024, respectively. The cash utilized was predominantly due to capital expenditures in the six months ended March 31, 2025 and 2024, respectively.
Previous wording
Cash provided by and used in financing activities during the three months ended December 31, 2024 and 2023 were approximately $12.2 million and $(5.0) million, respectively. The cash provided by financing activities was principally to satisfy short-term working capital needs for the three months ended December 31, 2024.
Current wording
Cash used in financing activities during the six months ended March 31, 2025 and 2024 were approximately $3.1 million and $9.8 million, respectively. The cash used in financing activities was primarily due to the prepayment of term debt.
Previous wording
As of December 31, 2024, our immediate sources of liquidity include cash of approximately $0.5 million, accounts receivable, and access to our secured revolving line of credit facility. This credit facility provides us with access of up to $50.0 million, subject to certain conditions including eligible accounts receivable. As of December 31, 2024, we had unused borrowing capacity of $11.8 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 March 31, 2025, our immediate sources of liquidity include cash, accounts receivable, and access to our secured revolving line of credit facility. This credit facility provides us with access of up to $50.0 million, subject to certain conditions including eligible accounts receivable. As of March 31, 2025, we had unused borrowing capacity of $19.8 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
A summary of our credit facilities for the period ended December 31, 2024 is as follows (in thousands):
Current wording
A summary of our credit facilities for the period ended March 31, 2025 is as follows (in millions):
Previous wording
1 Secured Overnight Financing Rate ("SOFR") as of December 31, 2024 was 4.6%.
Current wording
1 Secured Overnight Financing Rate ("SOFR") as of March 31, 2025 was 4.3%.
Previous 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 December 31, 2024, a fixed interest rate of 4.10% and a maturity date of January 31, 2026. As a result of entering these agreements, for the three months ended December 31, 2024, interest expense has been decreased by approximately $0.1 million.
Current wording
On January 31, 2023, we executed a floating-to-fixed interest rate swap with FNB which has a notional amount of$74.0 million at March 31, 2025, a fixed interest rate of 4.10% and a maturity date of January 31, 2026. As a result of entering these agreements, for the six months ended March 31, 2025, interest expense has been decreased by approximately $0.2 million.
Previous wording
(b) As amended, the secured revolving line of credit has a ceiling of up to $50.0 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 December 31, 2024 of$24.5 million.
Current wording
(b) As amended, the secured revolving line of credit has a ceiling of up to $50.0 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, 2025 of$13.9 million.
Rearranged current paragraphs (5)
Current report — wording carried from elsewhere
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 decreased $7.9 million for the three months ended March 31, 2025 over 2024; the decrease was primarily due to a decrease in revenue volume and a decrease in our overhead costs.
Current report — wording carried from elsewhere
The following table summarizes results of operations for the six months ended March 31, 2025 and 2024 (in thousands except for per share amounts, and percentage of revenue):
Current report — wording carried from elsewhere
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 $2.3 million for the six months ended March 31, 2025 over 2024. As a percentage of revenue, general and administrative costs decreased to 9.5% from 9.8%. The decrease is primarily due to reducing support costs proportionally with the change in revenue volume.
Current report — wording carried from elsewhere
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 six months ended March 31, 2025 over 2024, primarily due to the prepayment of debt and a decrease in the floating interest rate.
Current report — wording carried from elsewhere
Provision for income tax expense increased $0.8 million for the six months ended March 31, 2025 over 2024. The effective tax rate for the six months ended March 31, 2025 and 2024 was 27.4% and (1.3)%, respectively. The tax provision from the prior year period was positively impacted by the exercise of non-qualifying stock options.