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 (53.1%), firm fixed price contracts (25.9%), and cost reimbursable contracts (21.0%).

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 (52.5%), firm fixed price contracts (26.2%), and cost reimbursable contracts (21.3%).

Previous 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.

Current wording

•CMOP pharmacy and logistic services represent approximately $89.8 million and $105.8 million of revenues for the nine months ended June 30, 2025 and 2024, respectively.

Previous 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).

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 previously covered by this IDIQ: Chelmsford, Massachusetts (July 31, 2024) and Hines, Illinois (January 31, 2025).

Previous wording

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 wording

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 VA has awarded a task order to provide services at the Leavenworth location to a new prime contractor with whom we are not affiliated. At the conclusion of our task order ending August 31, 2025, we expect to cease operations at that location. 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.

Previous 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.

Current wording

At June 30, 2025, our backlog was approximately $555.3 million of which $92.3 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

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 wording

As we continue to align the Company’s capabilities with well-funded budget priorities and the current budgetary environment, 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.

Previous 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.

Current wording

During the nine months ended June 30, 2025, we generated revenues of approximately $89.8 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 three locations to a new SDVOSB prime contractor, including the Leavenworth, Kansas location, which is expected to transition to the new contractor on August 31, 2025. The remaining five 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 $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.

Current wording

Revenue decreased $17.4 million for the three months ended June 30, 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

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 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 $14.2 million for the three months ended June 30, 2025 over 2024; the decrease was primarily due to the decrease in revenue volume and a decrease in overhead 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 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.

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 $1.2 million for the three months ended June 30, 2025 as compared to 2024. As a percentage of revenue, general and administrative costs increased to 9.4% from 9.0%, with the increase primarily due to incremental business development costs.

Previous wording

For the three months ended March 31, 2025, depreciation and amortization expense were approximately $0.2 million and $4.1 million, respectively, as compared to approximately $0.1 million and $4.1 million for the three months ended March 31, 2024, respectively.

Current wording

For the three months ended June 30, 2025, 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, 2024, 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 $0.3 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.

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 $0.6 million for the three months ended June 30, 2025 over 2024, primarily due to the prepayment of debt and a decrease in the floating interest rate.

Previous wording

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 wording

The following table summarizes results of operations for the nine months ended June 30, 2025 and 2024 (in thousands except for per share amounts, and percentage of revenue):

Previous wording

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 wording

Revenue decreased $36.2 million for the nine months ended June 30, 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

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.

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 $28.8 million for the nine months ended June 30, 2025 and 2024. The decrease was primarily due to a decrease in revenue volume from low margin non-labor costs and a decrease in overhead 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 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 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 $3.5 million for the nine months ended June 30, 2025 over 2024. As a percentage of revenue, general and administrative costs were 9.5% for both periods. The decrease in general and administrative costs are primarily due to a reduction in support costs proportionally with the change in revenue volume.

Previous wording

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 wording

For the nine months ended June 30, 2025, depreciation and amortization expense were approximately $0.5 million and $12.3 million, respectively, as compared to approximately $0.4 million and $12.3 million for the nine months ended June 30, 2024, 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 $0.8 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 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 $1.4 million for nine months ended June 30, 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 $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.

Current wording

Provision for income tax expense increased $0.2 million for the nine months ended June 30, 2025 over 2024. The effective tax rate for the nine months ended June 30, 2025 and 2024 was 22.9% and 7.8%, respectively. The tax provision from the prior year period was positively impacted by the exercise of non-qualifying stock options.

Previous 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.

Current wording

On a non-GAAP basis, EBITDA for the nine months ended June 30, 2025 and 2024 was approximately $27.4 million and $31.3 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 $0.2 million and $0.3 million for the periods ended March 31, 2025 and September 30, 2024, respectively.

Current wording

Cash was approximately $0.2 million and $0.3 million as of June 30, 2025 and September 30, 2024, respectively.

Previous 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.

Current wording

Available borrowings under our revolving credit facility was approximately $15.1 million and $18.1 million for the periods ended June 30, 2025 and September 30, 2024, respectively. The decrease is primarily due to a lower outstanding receivables balance at June 30, 2025.

Previous 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.

Current wording

Cash flows provided by operating activities totaled approximately $12.5 million and $14.9 million for the nine months ended June 30, 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 $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.

Current wording

Cash used in investing activities totaled $0.2 million and $0.6 million for the nine months ended June 30, 2025 and 2024, respectively. The cash utilized was predominantly due to capital expenditures in the nine months ended June 30, 2025 and 2024, respectively.

Previous 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.

Current wording

Cash used in financing activities during the nine months ended June 30, 2025 and 2024 were approximately $12.5 million and $14.1 million, respectively. The cash used in financing activities was primarily due to the prepayment of term debt.

Previous 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.

Current wording

As of June 30, 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 June 30, 2025, we had unused borrowing capacity of $15.1 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 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.

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 June 30, 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 nine months ended June 30, 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 March 31, 2025 of$13.9 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 June 30, 2025 of$14.0 million.

Previous wording

(a) The increase in facility operating lease obligations was due to an extension executed during the period to an existing lease.

Current wording

(a) The increase in facility operating lease obligations was due to an amendment to an existing lease extending the lease term.

Previous wording

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 wording

The qualitative assessment of goodwill at June 30, 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 resulting in a decline in market capitalization. Management's assessment was that the market capitalization at the end of the 3rd quarter was not indicative of the Company's fair value.

Previous wording

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 wording

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 and control premiums 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.