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DLH Reports Second Quarter Fiscal Year 2019 Results

Senior Debt Paid Off; Gross Margin 23.9%; Operating Cash Flow $8.5 Million in Quarter

ATLANTA, May 7, 2019 /PRNewswire/ -- DLH Holdings Corp. (DLHC) ("DLH" or the "Company"), a leading provider of innovative healthcare services and solutions to federal agencies, today announced financial results for its fiscal second quarter ended March 31, 2019. 

Highlights

  • Fiscal second quarter revenue was $33.8 million versus $34.4 million in the second quarter of fiscal 2018
  • Gross profit was $8.1 million for the quarter, an increase of approximately 8.4% over the second quarter of fiscal 2018, and the Company's gross margin was 23.9% in 2019 versus 21.7% in the prior-year period
  • Diluted earnings per share were $0.10 for the second quarters of both fiscal 2019 and 2018
  • The Company paid off all outstanding senior debt - $7.4 million - during the period

Management Discussion

"Second quarter results once again illustrated the strong cash flow potential of our operations," stated DLH President and Chief Executive Officer Zach Parker. "While sales were down slightly from 2018, gross margins rose to 23.9% and we generated $8.5 million of cash – which we used to completely pay off the remaining $7.4 million of senior debt during the period. Our balance sheet is in excellent condition such that, while we continue to bid on larger, more complex opportunities within our core markets, we're in a strong position to look at attractive acquisitions that can bolster our capabilities and growth profile. We remain on track to post a solid year of financial performance and are optimistic about the market outlook for fiscal 2019 and beyond."

Results for the Three Months Ended March 31, 2019

Revenue for the second quarter of fiscal 2019 was $33.8 million versus $34.4 million in the prior-year period, with the slight decrease reflecting normal variation in service delivery.

Gross profit was $8.1 million for the quarter, an increase of approximately $0.6 million, or 8.4%, over the second quarter of fiscal 2018.  As a percent of revenue, the Company's gross margin was 23.9% in 2019 versus 21.7% in the prior-year period. General and Administrative ("G&A") expenses were $5.2 million for the quarter compared to $4.7 million in fiscal 2018, with the increase principally due to higher corporate development costs. Depreciation and amortization was $0.6 million in both fiscal year second quarters.

Income from operations was $2.3 million for the quarter versus $2.2 million in the prior-year period, and income before taxes was $1.8 million for the quarter versus $1.9 million in fiscal 2018, reflecting higher interest expense in 2019. The increase in interest expense was due to the write-off of $0.4 million of unamortized deferred financing costs from early pay-off of the term loan.

For the three months ended March 31, 2019 DLH recorded a $0.5 million provision for tax expense versus $0.6 million for the second quarter of 2018. The Company reported net income of approximately $1.3 million, or $0.10 per diluted share, for the second quarters of both fiscal 2019 and fiscal 2018.

On a non-GAAP basis, Earnings Before Interest Tax Depreciation and Amortization ("EBITDA") for the three months ended March 31, 2019 was approximately $2.9 million versus $2.8 million in the prior-year period. Growth was attributable to the higher gross profit, as described above.

Balance Sheet and Cash Flow

Cash as of March 31, 2019 was $5.5 million, and the Company's senior debt was $0.0 million, versus cash of $6.4 million and senior debt of $7.7 million as of September 30, 2018. Regarding cash flow, for the first six months of fiscal 2019 DLH generated approximately $6.8 million in cash from operations, versus $4.0 million last year, reflecting higher net income and improved working capital.

Conference Call and Webcast Details

DLH management will discuss second 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 tomorrow, May 8, 2019. 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 100127619. 

About DLH

DLH (DLHC) serves federal government clients throughout the United States and abroad delivering technology enabled solutions in key health and human services programs. The Company's core competencies and consulting services include assessment and compliance monitoring, program management, health IT systems integration, data analytics, medical logistics, and pharmacy solutions. DLH has over 1,600 employees serving numerous government agencies. For more information, visit the corporate website at 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 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. Those risks and uncertainties include, but are not limited to, the following: failure to achieve contract awards in connection with re-competes for present business and/or competition for new business; the risks and uncertainties associated with client interest in and purchases of new services; changes in client budgetary priorities; government contract procurement (such as bid protest, small business set asides, loss of work due to organizational conflicts of interest, etc.) and termination risks; the ability to successfully integrate the operations of our recent and 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, 2018, as well as interim quarterly filings thereafter. The forward-looking statements contained herein 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.

CONTACTS:
INVESTOR RELATIONS
Contact: Chris Witty
Phone: 646-438-9385
Email: cwitty@darrowir.com  

TABLES TO FOLLOW

 

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




(unaudited)


(unaudited)



Three Months Ended


Six Months Ended



March 31,


March 31,



2019


2018


2019


2018

Revenue


$

33,756


$

34,401


$

67,508


$

64,616

Direct expenses


25,682


26,953


$

51,647


$

50,636

Gross margin


8,074


7,448


$

15,861


$

13,980

General and administrative expenses


5,188


4,684


$

9,855


$

9,564

Depreciation and amortization


560


560


$

1,123


$

1,066

Income from operations


2,326


2,204


$

4,883


$

3,350

Interest expense, net


544


261


$

721


$

539

Income before income taxes


1,782


1,943


$

4,162


$

2,811

Income tax expense


517


627


$

1,207


$

4,346

Net income (loss)


$

1,265


$

1,316


$

2,955


$

(1,535)










Net income (loss) per share - basic


$

0.11


$

0.11


$

0.25


$

(0.13)

Net income (loss) per share - diluted


$

0.10


$

0.10


$

0.23


$

(0.13)

Weighted average common shares outstanding









Basic


12,036


11,889


11,999


11,863

Diluted


13,087


12,886


13,030


11,863










 

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




March 31,
2019


September 30,
2018



(unaudited)



ASSETS





Current assets:





Cash and cash equivalents


$

5,461


$

6,355

Accounts receivable


9,396


10,280

Other current assets


1,509


760

Total current assets


16,366


17,395

Equipment and improvements, net


1,328


1,566

Deferred taxes, net


3,160


4,137

Goodwill


25,989


25,989

Intangible assets, net


12,483


13,365

Other long-term assets


201


89

Total assets


$

59,527


$

62,541






LIABILITIES AND SHAREHOLDERS' EQUITY





Current liabilities:





Accrued payroll


5,217


4,983

Accounts payable, accrued expenses, and other current liabilities


11,305


10,950

Total current liabilities


16,522


15,933

Total long term liabilities


201


7,190

Total liabilities


16,723


23,123

Commitments and contingencies





Shareholders' equity:





Common stock, $0.001 par value; authorized 40,000 shares; issued and outstanding
12,036 and 11,899 at March 31, 2019 and September 30, 2018, respectively


12


12

Additional paid-in capital


84,716


84,285

Accumulated deficit


(41,924)


(44,879)

Total shareholders' equity


42,804


39,418

Total liabilities and shareholders' equity


$

59,527


$

62,541

 

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




(unaudited)



Six Months Ended



March 31,



2019


2018

Operating activities





Net income (loss)


$

2,955


$

(1,535)

Adjustments to reconcile net income (loss) to net cash provided by operating
activities:





Depreciation and amortization expense


1,123


1,066

Amortization of deferred financing costs


534


132

Stock based compensation expense


392


928

Deferred taxes, net


978


4,166

Changes in operating assets and liabilities





Accounts receivable


884


(427)

Other current assets


(749)


(347)

Accounts payable, accrued expenses, and other current liabilities


589


(31)

Other long term assets/liabilities


73


44

Net cash provided by operating activities


6,779


3,996






Investing activities





Purchase of equipment and improvements


(4)


(588)

Net cash used in investing activities


(4)


(588)






Financing activities





Repayments on senior debt


(7,708)


(4,793)

Repayments of capital lease obligations



(5)

Proceeds from stock option exercise


39


46

Net cash used in financing activities


(7,669)


(4,752)






Net change in cash and cash equivalents


(894)


(1,344)

Cash and cash equivalents at beginning of year


6,355


4,930

Cash and cash equivalents at end of year


$

5,461


$

3,586






Supplemental disclosures of cash flow information





Cash paid during the period for interest


$

234


$

427

Cash paid during the period for income taxes


$

247


$

578

Supplemental disclosures of non-cash financing activity





Derivative warrant liability reclassified as equity


$


$

(306)

Noncash issuance of stock upon exercise of options


$


$

25

 

Revenue Metrics




Six Months Ended



March 31,


March 31,



2019


2018

Market Mix:





Defense/VA


69

%


62

%

Human Services and Solutions


29

%


35

%

Public Health/Life Sciences


2

%


3

%






Contract Mix:





Time and materials


97

%


97

%

Cost plus fixed fee


2

%


2

%

Firm fixed price


1

%


1

%






Prime vs Sub:





Prime


99

%


99

%

Subcontractor


1

%


1

%

Non-GAAP Financial Measures

The Company uses EBITDA as a supplemental non-GAAP measure of our performance. DLH defines EBITDA as net income excluding (i) interest expense, (ii) provision for or benefit from income taxes and (iii) depreciation and amortization.

In addition, we are also reporting our net income excluding the impact of the Tax Cut and Jobs Act of 2017 to demonstrate the impact of the tax law change. On December 22, 2017, the Tax Cut and Jobs Act was enacted, which, among other things, reduced corporate tax rates and revised rules regarding the usability of net operating losses. These changes have resulted in a tax provision of $3.4 million for the first quarter of fiscal 2018 associated with revaluing the benefit of our net operating losses.  For comparability, the tax provision for the prior year period has been restated using the current year rate of 29%.

These non-GAAP measures of performance are used by management to conduct and evaluate its business during its regular 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. DLH believes 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 (loss) to EBITDA, a non-GAAP measure:



Three Months Ended


Six Months Ended



March 31,


March 31,



2019


2018


Change


2019


2018


Change

Net income (loss)


$

1,265


$

1,316


$

(51)


$

2,955


$

(1,535)


$

4,490

(i) Interest expense


544


261


283


721


539


182

(ii) Provision for taxes


517


627


(110)


1,207


4,346


(3,139)

(iii) Depreciation and
amortization


560


560



1,123


1,066


57

EBITDA


$

2,886


$

2,764


$

122


$

6,006


$

4,416


$

1,590

Reconciliation of GAAP net income (loss) to net income adjusted for the effect of the 2017 Tax Act, a non-GAAP measure:



Six Months Ended



March 31,



2019


2018


Change

Net income (loss)


$

2,955


$

(1,535)


$

4,490

Write-down of deferred tax assets


$


$

3,365


$

(3,365)

Pro-forma impact of tax rate change


$


$

166


$

(166)

Net income, adjusted for the effect of the 2017 Tax Act


$

2,955


$

1,966


$

959








Net income per diluted share


$

0.23


$

(0.13)


$

0.36

Impact of write-down of deferred tax asset


$


$

0.28


$

(0.28)

Pro-forma impact of tax rate change


$


$

0.01


$

(0.01)

Net income per diluted share, adjusted for the effect of the 2017
Tax Act


$

0.23


$

0.16


$

0.07

 

 

Cision

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