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DLH Reports Fiscal 2021 Third Quarter Results

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Revenue of $61.6 Million; Operating Margins Hit 8.0%
Year-to-Date Operating Cash Flow of $15.4 Million

ATLANTA, Aug. 04, 2021 (GLOBE NEWSWIRE) -- DLH Holdings Corp. (NASDAQ: DLHC) (“DLH” or the “Company”), a leading provider of innovative healthcare services and solutions to federal agencies, today announced financial results for its fiscal third quarter ended June 30, 2021.

Highlights

  • Third quarter revenue increased to $61.6 million in fiscal 2021 from $51.5 million in fiscal 2020, reflecting the acquisition of Irving Burton Associates (“IBA”) and organic program growth

  • Operating margins rose to 8.0% in the current year third quarter from 7.4% in the prior-year period

  • Earnings were $2.9 million, or $0.21 per diluted share, for the fiscal 2021 third quarter versus $2.1 million, or $0.16 per diluted share, for the third quarter of fiscal 2020

  • The Company generated $15.4 million in operating cash through June 30, 2021, including $9.3 million in the fiscal third quarter, versus $10.7 million in the comparable prior-year nine-month period

  • The April 2021 contract award of the Consolidated Mail Outpatient Pharmacy ("CMOP") logistics recompete with U.S. Department of Veterans Affairs ("VA") was protested, and subsequently cancelled, in accordance with applicable requirements to address elements of the procurement process. As the review continues, the Company's existing contract was extended through November 2021 and may be extended further

  • Contract backlog was $566.2 million as of June 30, 2021

Management Discussion
“Fiscal 2021 continues to be one of achievement for DLH, as we once again grew the top line, increased margins, and improved overall operating performance in the third quarter,” said DLH President and Chief Executive Officer Zach Parker. “Revenue rose to $61.6 million and operating margins expanded to 8.0%, reflecting strong demand for our technology-enabled solutions across the core federal agencies we serve. At the same time, we generated $9.3 million of cash from operations in the quarter, allowing us to further pay down debt and de-lever the balance sheet. Our backlog remains robust, even as we await resolution on the previously-announced CMOP logistics recompete, for which we expect a favorable outcome. Overall, we anticipate ending fiscal 2021 with strong results against all key metrics, positioning us well for fiscal 2022 against a backdrop of increased healthcare spending, a focus on digitization and cloud computing, and enduring support for Veterans Affairs."

Results for the Three Months Ended June 30, 2021
Revenue for the third quarter of fiscal 2021 was $61.6 million versus $51.5 million in the prior-year period. The increase was due principally to the Company’s IBA acquisition, completed September 30, 2020, which added approximately $7.3 million in revenue, and increased work across other DLH programs.

Income from operations was $4.9 million for the quarter versus $3.8 million in the prior-year period and, as a percent of revenue, the Company reported an operating margin of 8.0% in fiscal 2021 versus 7.4% in fiscal 2020. The current year performance reflects increased revenue contribution from time and materials programs, which generally yield stronger returns than cost reimbursable contracts, and lower general and administrative ("G&A") expenses, partially offset by higher depreciation and amortization.

Interest expense in the quarter increased to $0.9 million, versus $0.8 million for the three months ended June 30, 2020, due to higher outstanding debt levels, reflecting the acquisition of IBA. Income before taxes was $4.0 million for the quarter versus $3.0 million in fiscal 2020, representing 6.5% and 5.8% of revenue, respectively, for each period.

For the three months ended June 30, 2021 and 2020, respectively, DLH recorded a $1.2 million and $0.9 million provision for tax expense. The Company reported net income of approximately $2.9 million, or $0.21 per diluted share, for the third quarter of fiscal 2021 versus $2.1 million, or $0.16 per diluted share, for the third quarter of fiscal 2020. As a percent of revenue, net income was 4.7% for the third quarter of fiscal 2021 versus 4.1% for the prior year period.

On a non-GAAP basis, EBITDA for the three months ended June 30, 2021 was approximately $7.0 million versus $5.5 million in the prior-year period, or 11.3% and 10.7% of revenue, respectively.

Key Financial Indicators
Fiscal year to date, DLH has generated $15.4 million in operating cash, and has paid down $16.2 million of its secured loan facility. We have satisfied mandatory principal amortization on the loan facility until March 31, 2023. The Company anticipates strong operating cash flow for the remainder of the fiscal year and intends to continue using cash to make debt prepayments when possible.

As of June 30, 2021, the Company had cash and cash equivalents of $0.7 million and debt outstanding under its credit facility of $53.8 million, versus cash of $1.4 million and debt outstanding of $70.0 million as of September 30, 2020.

At June 30, 2021, total backlog was approximately $566.2 million, including funded backlog of approximately $76.4 million, and unfunded backlog of $489.8 million.

Conference Call and Webcast Details
DLH management will discuss third quarter results and provide a general business update, including current competitive conditions and strategies, during a conference call beginning at 11:00 AM Eastern Time Thursday, August 5, 2021. Interested parties may listen to the conference call by dialing 888-347-5290 or 412-317-5256. Presentation materials will also be posted on the Investor Relations section of the DLH website prior to the commencement of the conference call.

A digital recording of the conference call will be available for replay two hours after the completion of the call and can be accessed on the DLH Investor Relations website or by dialing 877-344-7529 and entering the conference ID 10149431.

About DLH

DLH delivers improved health and readiness solutions for federal programs through research, development, and innovative care processes. The Company’s experts in public health, performance evaluation, and health operations solve the complex problems faced by civilian and military customers alike, leveraging digital transformation, artificial intelligence, advanced analytics, cloud-based applications, telehealth systems, and more. With over 2,200 employees dedicated to the idea that “Your Mission is Our Passion,” DLH brings a unique combination of government sector experience, proven methodology, and unwavering commitment to public health to improve the lives of millions. For more information, visit www.DLHcorp.com.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:
This press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to future events or DLH`s future financial performance. Any statements that refer to expectations, projections or other characterizations of future events or circumstances or that are not statements of historical fact (including without limitation statements to the effect that the Company or its management “believes”, “expects”, “anticipates”, “plans”, “intends” and similar expressions) should be considered forward looking statements that involve risks and uncertainties which could cause actual events or DLH’s actual results to differ materially from those indicated by the forward-looking statements. Forward-looking statements in this release include, among others, statements regarding estimates of future revenues, operating income, earnings and cash flow. These statements reflect our belief and assumptions as to future events that may not prove to be accurate. Our actual results may differ materially from such forward-looking statements made in this release due to a variety of factors, including: the outbreak of the novel coronavirus (“COVID-19”), including the measures to reduce its spread, and its impact on the economy and demand for our services, are uncertain, cannot be predicted, and may precipitate or exacerbate other risks and uncertainties; the risk that we will not realize the anticipated benefits of our recent or any future acquisition; the challenges of managing larger and more widespread operations resulting from our recent acquisition; contract awards in connection with re-competes for present business and/or competition for new business; compliance with new bank financial and other covenants; changes in client budgetary priorities; government contract procurement (such as bid and award protests, small business set asides, loss of work due to organizational conflicts of interest, etc.) and termination risks; the ability to successfully integrate the operations our recent acquisition and of any future acquisitions; and other risks described in our SEC filings. For a discussion of such risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements, see “Risk Factors” in the Company’s periodic reports filed with the SEC, including our Annual Report on Form 10-K for the fiscal year ended September 30, 2020, as well as subsequent reports filed thereafter. The forward-looking statements contained herein are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about our industry and business. Such forward-looking statements are made as of the date hereof and may become outdated over time. The Company does not assume any responsibility for updating forward-looking statements, except as may be required by law.

CONTACTS:

INVESTOR RELATIONS

Contact: Chris Witty

Phone: 646-438-9385

Email: cwitty@darrowir.com


DLH HOLDINGS CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands except per share amounts)

(unaudited)

Three Months Ended

Nine Months Ended

June 30,

June 30,

2021

2020

2021

2020

Revenue

$

61,555

$

51,459

$

180,913

$

158,495

Cost of Operations:

Contract costs

48,365

39,615

143,092

123,895

General and administrative costs

6,237

6,323

18,522

18,497

Depreciation and amortization

2,014

1,721

6,105

5,340

Total operating costs

56,616

47,659

167,719

147,732

Income from operations

4,939

3,800

13,194

10,763

Interest expense, net

893

813

2,977

2,659

Income before income taxes

4,046

2,987

10,217

8,104

Income tax expense

1,166

863

2,956

2,352

Net income

$

2,880

$

2,124

$

7,261

$

5,752

Net income per share - basic

$

0.23

$

0.17

$

0.58

$

0.47

Net income per share - diluted

$

0.21

$

0.16

$

0.54

$

0.44

Weighted average common shares outstanding

Basic

12,545

12,354

12,529

12,246

Diluted

13,655

13,228

13,568

13,050

DLH HOLDINGS CORP.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except par value of shares)

June 30,
2021

September 30,
2020

(unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$

739

$

1,357

Accounts receivable

36,409

32,541

Other current assets

3,632

3,499

Total current assets

40,780

37,397

Equipment and improvements, net

2,226

3,339

Operating lease right-of-use assets

20,481

22,427

Deferred taxes, net

37

Goodwill

65,643

67,144

Intangible assets, net

49,115

52,612

Other long-term assets

506

606

Total assets

$

178,751

$

183,562

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Debt obligations - current, net of deferred financing costs

$

$

6,727

Operating lease liabilities - current

2,186

2,045

Accrued payroll

10,208

10,611

Accounts payable, accrued expenses, and other current liabilities

32,630

28,578

Total current liabilities

45,024

47,961

Long-term liabilities:

Debt obligations - long term, net of deferred financing costs

51,537

60,544

Operating lease liabilities - long-term

19,944

21,620

Total long-term liabilities

71,481

82,164

Total liabilities

116,505

130,125

Shareholders' equity:

Common stock, $0.001 par value; authorized 40,000 shares; issued and outstanding 12,545 and 12,404 at June 30, 2021 and September 30, 2020, respectively

13

12

Additional paid-in capital

87,415

85,868

Accumulated deficit

(25,182

)

(32,443

)

Total shareholders’ equity

62,246

53,437

Total liabilities and shareholders' equity

$

178,751

$

183,562



DLH HOLDINGS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)

Nine Months Ended

June 30,

2021

2020

(unaudited)

Operating activities

Net income

$

7,261

$

5,752

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

6,105

5,340

Amortization of deferred financing costs

610

551

Stock based compensation expense

1,317

566

Deferred taxes, net

2,177

1,987

Gain from lease modification

(121

)

Changes in operating assets and liabilities

Accounts receivable

(3,868

)

(6,409

)

Other current assets

(133

)

(1,941

)

Accrued payroll

(403

)

636

Accounts payable, accrued expenses, and other current liabilities

1,912

3,620

Other long-term assets/liabilities

410

726

Net cash provided by operating activities

15,388

10,707

Investing activities

Business acquisition adjustment, net of cash acquired

59

Purchase of equipment and improvements

(53

)

(152

)

Net cash provided by (used in) investing activities

6

(152

)

Financing activities

Repayment of secured term loan

(16,200

)

(11,500

)

Payment of deferred financing costs

(43

)

(3

)

Repurchased shares of common stock

(211

)

Proceeds from issuance of common stock upon exercise of options

231

27

Net cash used in financing activities

(16,012

)

(11,687

)

Net change in cash and cash equivalents

(618

)

(1,132

)

Cash and cash equivalents at beginning of year

1,357

1,790

Cash and cash equivalents at end of year

$

739

$

658

Supplemental disclosures of cash flow information

Cash paid during the period for interest

$

2,321

$

2207

Cash paid during the period for income taxes

$

396

$

432

Supplemental disclosures of non-cash activity

Non-cash cancellation of common stock

$

$

211

Revenue Metrics

Nine Months Ended

June 30,

June 30,

2021

2020

Market Mix:

Defense/VA

58

%

48

%

Human Services and Solutions

15

%

20

%

Public Health/Life Sciences

27

%

32

%

Contract Mix:

Time and Materials

76

%

70

%

Cost Reimbursable

20

%

28

%

Firm Fixed Price

4

%

2

%

Prime vs Sub:

Prime

88

%

93

%

Subcontractor

12

%

7

%

Non-GAAP Financial Measures
The Company uses EBITDA and EBITDA as a percent of revenue as supplemental non-GAAP measures of performance. We define EBITDA as net income excluding (i) interest expense, (ii) provision for or benefit from income taxes and (iii) depreciation and amortization. EBITDA as a percent of revenue is EBITDA for the measurement period divided by revenue for the same period.

These non-GAAP measures of performance are used by management to conduct and evaluate its business during its review of operating results for the periods presented. Management and the Company's Board utilize these non-GAAP measures to make decisions about the use of the Company's resources, analyze performance between periods, develop internal projections and measure management performance. We believe that these non-GAAP measures are useful to investors in evaluating the Company's ongoing operating and financial results and understanding how such results compare with the Company's historical performance.

Reconciliation of GAAP net income to EBITDA, a non-GAAP measure:


Three Months Ended

Nine Months Ended

June 30,

June 30,

(Amounts in Thousands)

2021

2020

Change

2021

2020

Change

Net income

$

2,880

$

2,124

$

756

$

7,261

$

5,752

$

1,509

(i) Interest expense, net

893

813

80

2,977

2,659

318

(ii) Provision for taxes

1,166

863

303

2,956

2,352

604

(iii) Depreciation and amortization

2,014

1,721

293

6,105

5,340

765

EBITDA

$

6,953

$

5,521

$

1,432

$

19,299

$

16,103

$

3,196


Net income as a % of revenue

4.7

%

3.7

%

1.0

%

4.0

%

3.6

%

0.4

%

EBITDA as a % of revenue

11.3

%

10.7

%

0.6

%

10.7

%

10.2

%

0.5

%

Revenue

$

61,555

$

51,459

$

10,096

$

180,913

$

158,495

$

22,418