DLH Holdings Corp.

3. New Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”), which requires public entities to disclose significant segment expenses that are regularly provided to the Company’s Chief Operating Decision Maker (“CODM”) and included in the measure of segment profit or loss. The standard also requires disclosure of the title and position of the CODM, as well as a description of how the CODM uses segment profit or loss information in evaluating performance and allocating resources. The Company adopted ASU 2023-07 in its Annual Report on Form 10-K for the fiscal year ended September 30, 2025. DLH operates as a single reporting segment. Accordingly, the adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In December 2023, FASB issued ASU 2023-09 "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" which provides guidance on the requirements such as the requirement that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold. DLH is a public company that reports income tax disclosures and therefore this ASU applies to the Company. ASU 2023-09 is effective for public business entities for fiscal years beginning after Dec. 15, 2024. We will adopt ASU 2023-09 in our Annual Report on Form 10-K for the fiscal year ending September 30, 2026. We are currently evaluating the impacts of the improvements to income tax disclosure.

In November 2024, the FASB issued ASU 2024-03, “Income Statement - Reporting Comprehensive Income (Subtopic 220-40): Expense Disaggregation Disclosures”. To enhance transparency in financial reporting by requiring public business entities to disclose disaggregated information about expenses in their financial statements. The guidance mandates disclosure of specific cost components, such as inventory purchases, employee compensation, depreciation, and amortization, within relevant income statement expense captions, along with qualitative descriptions of any remaining undissected amounts. Entities must also disclose total selling expenses and define these annually. Effective for annual reporting periods beginning after December 15, 2026, and interim periods in 2027, the ASU allows prospective or retrospective application and permits early adoption. We are currently evaluating the impacts of the improvements to our disclosure.

4. Revenue Recognition

The following table summarizes the contract balances recognized in accounts receivable within the Company's consolidated balance sheets at September 30, 2025 and 2024 (in thousands):

Contract assets are included as part of accounts receivable on the consolidated balances sheets. The change from prior period was primarily due to invoice timing. There wereno contract liabilities as of September 30, 2025 and September 30, 2024.

The opening balance for contract assets for the fiscal year ended September 30, 2024 was $20,542.

Disaggregation of revenue from contracts with customers

We disaggregate our revenue from contracts with customers by customer, contract type, as well as whether the Company acts as prime contractor or subcontractor. We believe these categories best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. The following series of tables presents our revenue disaggregated by these categories:

Revenue by customer for the years ended September 30, 2025 and 2024 (in thousands):

Revenue by contract type for the years ended September 30, 2025 and 2024 (in thousands):

Revenue by whether the Company acts as a prime contractor or a subcontractor for the years ended September 30, 2025 and 2024 (in thousands):

5. Leases

The following table summarizes lease balances presented on our consolidated balance sheets at September 30, 2025 and 2024 (in thousands):

As of September 30, 2025, operating leases for facilities and equipment have remaining lease terms of less than 1.3 years to 7.3 years. The non-cash increase in both lease liabilities and right-of-use assets during the current period was primarily attributable to an extension of an existing operating lease. The non-cash increase to lease liabilities from the lease extension was $4.2 million.

For the years ended September 30, 2025 and 2024, total lease costs for our operating leases are as follows (in thousands):

(a): The Company subleases a portion ofone of its leased facilities. The sublease is classified as an operating lease with respect to the underlying asset. The sublease term is 5 years and includestwo additional 1-year term extension options.

The Company's future minimum lease payments as of September 30, 2025 are as follows (in thousands):

At September 30, 2025, the weighted-average remaining lease term and weighted-average discount rate are 5.4 years and 6.9%, respectively. The calculation of the weighted-average discount rate was determined based on borrowing terms from our secured term loan.

Other information related to our leases was as follows for the years ending September 30, 2025 and 2024 (in thousands):

6. Supporting Financial Information

Accounts receivable

The following table summarizes accounts receivable presented on our consolidated balance sheets at September 30, 2025 and 2024 (in thousands):

The opening balance for accounts receivable for the fiscal year ended September 30, 2024 was $59,119.

Other current assets

The following table summarizes other current assets presented on our consolidated balance sheets at September 30, 2025 and 2024 (in thousands):

Goodwill

There wereno changes in goodwill for the year ended September 30, 2025. The balance of goodwill was approximately $138.2 million as of September 30, 2025 and 2024.

Intangible assets, net

The following table summarizes intangible assets, net presented on our consolidated balance sheets at September 30, 2025 and 2024 (in thousands):

Amortization expense for the years ended September 30, 2025 and 2024 was $16.5 million and $16.5 million, respectively.

As of September 30, 2025, the estimated annual amortization expense was as follows (in thousands):

The weighted-average remaining amortization period at September 30, 2025:

Equipment and improvements, net

The following table summarizes equipment and improvements, net presented on our consolidated balance sheets at September 30, 2025 and 2024 (in thousands):

Depreciation expense was $0.7 million and $0.6 million for the years ended September 30, 2025 and 2024, respectively.

During the year ended September 30, 2025, the Company disposed of $3.9 million of equipment and improvements, primarily within the computer equipment and software category. All assets were fully depreciated and no longer in use. No cash proceeds were received as part of the disposal of these assets.

Accounts payable and accrued liabilities

The following table summarizes accounts payable and accrued liabilities presented on our consolidated balance sheets at September 30, 2025 and 2024 (in thousands):

Accrued payroll

The following table summarizes accrued payroll presented on our consolidated balance sheets at September 30, 2025 and 2024 (in thousands):

Debt obligations

The following table summarizes debt obligations presented on our consolidated balance sheets at September 30, 2025 and 2024 (in thousands):

Through September 30, 2026, we have satisfied mandatory principal payments on our secured term loan.

(a) As of September 30, 2025, the current portion was comprised of $8.1 million outstanding balance on the secured revolving line of credit. All fiscal 2025 mandatory loan amortization payments have been satisfied by voluntary prepayments.

Interest expense

The following table summarizes interest expense presented on our consolidated statements of operations for the years ended September 30, 2025 and 2024 (in thousands):

(a): Interest expense on borrowing.

(b): Interest earned from customer payments received after the due date.

(c): Amortization of expenses related to secured term loan and secured revolving line of credit.

7. Credit Facilities

A summary of our credit facilities as presented on our consolidated balance sheets as follows (in millions):

1 Secured Overnight Financing Rate ("SOFR") as of September 30, 2025 and September 30, 2024 was 4.3% and 5.2%, respectively.

(a) Represents the principal amounts payable on our term loan, which is secured by liens on substantially all of the assets of the Company. The principal of the term loan is payable in quarterly installments with the remaining balance due on December 8, 2027.

On January 31, 2023, we executed a floating-to-fixed interest rate swap with First National Bank which has a notional amount of $74.0 millionat September 30, 2025, a fixed interest rate of 4.10% and a maturity date of January 31, 2026. As a result of entering interest rate swap agreements, for the twelve months ended September 30, 2025, interest expense has been decreased by approximately $0.2 million.

The Credit Agreement requires compliance with a number of financial covenants and contains restrictions on our ability to engage in certain transactions. Among other matters, we must comply with limitations on: granting liens; incurring other indebtedness; maintenance of assets; investments in other entities and extensions of credit; mergers and consolidations; and changes in nature of business. The loan agreement also requires us to comply with certain quarterly financial covenants including: (i) a minimum fixed charge coverage ratio of at least 1.15 to 1.00, and (ii) a total leverage ratio not exceeding the ratio of 4.75:1.00 to 2.00:1.00 through maturity. The total leverage ratio is calculated by dividing the Company's total interest-bearing debt by net income adjusted to exclude (i) interest and other expenses, (ii) provision for or benefit from income taxes, if any, (iii) depreciation and amortization, and (iv) non-cash charges, losses or expenses, including stock-based compensation, and (v) non-recurring charges, losses or expenses to include transaction and non-cash equity expense. We are in compliance with all loan covenants and restrictions as of September 30, 2025.

We are required to pay quarterly amortization payments, which commenced in December 2022. The annual amortization amounts are $19.0 million for fiscal year 2026, and $23.8 million for fiscal year 2027, with the remaining unpaid loan balance due at maturity in December 2027. The quarterly payments are equal installments. The outstanding principal balance on the secured term loan was $123.5 million as of September 30, 2025 . We have satisfied the mandatory principal payments through September 30, 2026.

In addition to quarterly payments of the outstanding indebtedness, the loan agreement also requires annual payments of a percentage of excess cash flow, as defined in the loan agreement. The loan agreement states that an excess cash flow recapture payment must be made equal to (a)75% of the excess cash flow for the immediately preceding fiscal year in which indebtedness to consolidated EBITDA ratio is greater than or equal to 2.50:1.00; (b)50% of the excess cash flow for the immediately preceding fiscal year in which the funded indebtedness to consolidated EBITDA Ratio is less than 2.50:1.00 but greater than or equal to 1.50:1.00; or (c)0% of the excess cash flow for the immediately preceding fiscal year in which the funded indebtedness to consolidated EBITDA Ratio is less than 1.50:1.00. In addition, the Company must make additional mandatory prepayment of amounts outstanding based on proceeds received from asset sales and sales of certain equity securities or other indebtedness. Due to the voluntary prepayment of term debt, there was no excess cash flow payment required. For additional information regarding the schedule of future payment obligations, please refer to Note 10 Commitments and Contingencies.

(b) As amended, the secured revolving line of credit has a ceiling of up to $50.0 million; as of September 30, 2025, we had unused borrowing capacity of $23.6 million, which is net of outstanding letters of credit. Borrowing on the secured revolving line of credit is secured by liens on substantially all of the assets of the Company. The Company accessed funds from the secured revolving line of credit during the year, which had a $8.1 million outstanding balance at September 30, 2025. As part of the secured revolving line of credit, the lenders agreed to a sublimit of $10.0 million for letters of credit for the account of the Company, subject to applicable procedures.

8. Stock-based Compensation and Equity Grants

Stock-based compensation expense

Options issued under equity incentive plans were designated as either an incentive stock or a non-statutory stock option. No option was granted with a term of more than 10 years from the date of grant. Exercisability of option awards may depend on achievement of certain performance measures determined by the Compensation Committee of our Board. Shares issued upon option exercise are newly issued shares. As of September 30, 2025, there were 1.2 million shares available for grant.

Total stock-based compensation expense, presented in the table below, was recorded in general and administrative expenses included in our consolidated statements of operations for the years ended September 30, 2025 and 2024 (in thousands):

(a) At a 50% volatility and assumptions of a 3-year term and the performance vesting criteria results in an indicated a fair value. The RSUs granted during the fiscal year ended September 30, 2025, as follows using the Monte Carlo Method.

Unrecognized stock-based compensation expense

Unrecognized stock-based compensation expense is presented in the table below for the years ending September 30, 2025 and 2024 (in thousands):

(a): On a weighted average basis, this expense is expected to be recognized within the next 2.3 years.

Restricted Stock Unit ("RSU") activity for the year ended September 30, 2025:

Equity grants of RSUs were made in accordance with DLH compensation policy for non-employee directors and a total of 67,615 and 61,525 restricted stock units were issued and outstanding at September 30, 2025 and 2024, respectively. These grants have service-based vesting criteria and vest at the end of this fiscal year.

Stock option activity for the year ended September 30, 2025:

The aggregate intrinsic value in the table below represents the total pretax intrinsic value (i.e., the difference between the Company’s closing stock price on the last trading day of the period and the exercise price, times the number of shares) that would have been received by the option holders had all option holders exercised their in the money options on those dates. This amount will change based on the fair market value of the Company’s stock. A summary of the Company's stock option awards is as follows:

Stock options shares outstanding, vested and unvested for the years ended September 30, 2025 and 2024 (in thousands):

(a): Certain awards vest upon satisfaction of certain performance criteria.

9. Earnings Per Share

Basic earnings per share is calculated by dividing income available to common shareholders by the weighted average number of common shares outstanding and restricted stock grants that vested or are likely to vest during the period. Diluted earnings per share is calculated by dividing income available to common shareholders by the weighted average number of basic common shares outstanding, adjusted to reflect potentially dilutive securities. Diluted earnings per share is calculated using the treasury stock method.

Earnings Per Share information is presented in the table below for the years ending September 30, 2025 and 2024 (in thousands except for per share amounts):

10. Commitments and Contingencies

Contractual Obligations as of September 30, 2025 (in thousands):

As a commercial enterprise and employer, the Company is subject to various claims and legal actions in the ordinary course of business. These matters can include professional liability, employment-relations issues, workers’ compensation, tax, payroll and employee-related matters, other commercial disputes arising in the course of its business, and inquiries and investigations by governmental agencies regarding our employment practices or other matters. 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.

11. Related Party Transactions

The Company has determined that for the years ended September 30, 2025 and 2024 and through the filing date of this report, there were no related party transactions that have occurred which require disclosure through the date that these consolidated financial statements were issued.

12. Provision for Income Taxes

The significant components of provision for income taxes from continuing operations are summarized as follows for the years ending September 30, 2025 and 2024 (in thousands):

The following table presents the significant differences between our income taxes at the federal statutory rate and the Company's effective tax rate for continuing operations for the years ending September 30, 2025 and 2024 (in thousands):

An analysis of the Company's deferred tax assets and liabilities at September 30, 2025 and 2024 is as follows (in thousands):

As of September 30, 2025 the Company had gross state net operating loss carryforwards of approximately $51.2 million. The state net operating losses will not expire and can be carried forward indefinitely. The state net operating loss carryforwards have been reviewed and a net valuation allowance of $3.0 million has been recorded against those that are not likely to be utilized. The increase in the valuation allowance is attributable to additional state net operating losses generated during the year ended September 30, 2025.

The One Big Beautiful Bill Act that amended Section 163(j) of the Internal Revenue Code introduced a change to the calculation of Adjusted Taxable Income ("ATI") that generally allows for a larger deduction of business interest expense. The primary change that makes the deduction more favorable and is likely to increase the company's deductible interest expense is the permanent reinstatement of EBITDA-based ATI.

13. Quarterly Financial Data (Unaudited)

During fiscal year 2025, the Company made reclassification adjustments that resulted in certain transactions previously reported within general and administrative cost being reclassified to contract costs. These adjustments were applied to fiscal 2024 to conform to the current period presentation. The reclassifications did not impact total operating income, net income, or earnings per share for any period presented. The Company will continue this presentation convention in fiscal 2026.

Management believes that these reclassifications enhance the presentation of the Company’s financial results by providing improved transparency and a clearer understanding of the nature of its costs of operations.

A summary of quarterly information for each fiscal year with the reclassified transactions is as follows (in thousands, except per share data)

14. Employee Benefit Plans

As of September 30, 2025, the Company maintains a 401(k) Plan (the "401(k) Plan"), a defined contribution and supplemental pension plan for the benefit of its eligible employees. The Company may provide a discretionary matching contribution of a participant's elective contributions under the 401(k) Plan. The Company recorded related expense of $4.2 million and $3.4 million for the years ending September 30, 2025 and 2024, respectively. Participants are always fully vested in their elective contributions and immediately vest in Company matching contributions.

15. Subsequent Events

Management has evaluated subsequent events through the date that the Company's unaudited consolidated financial statements were issued. Based on this evaluation, the Company has determined that no subsequent events have occurred which require disclosure through the date that these consolidated financial statements were issued.