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 fourth quarter ended
September 30, 2020.
Highlights of Fiscal Year
2020
- Annual revenue rose to $209.2
million in fiscal 2020 from $160.4 million in fiscal 2019,
reflecting growth in key programs, new awards, and recent
acquisitions, more than offsetting the impact from COVID-19 on
certain programs and services.
- Earnings were $7.1 million, or
$0.54 per diluted share, for fiscal 2020 versus $5.3 million, or
$0.41 per diluted share, for the prior-year period.
- Operating cash flow was $19.5
million for the fiscal year; senior bank debt was reduced by $19.0
million during fiscal 2020 and by $33.0 million since the June 2019
acquisition, resulting in a debt balance of $37.0 million, prior to
closing the IBA transaction.
- On September 30, 2020, the Company
completed the acquisition of Irving Burton Associates (“IBA”), a
leading provider of technology-enabled military health solutions,
for $32.0 million.
- The Company's backlog strengthened
to $688.4 million at fiscal year end, following the successful Head
Start recompete and the acquisition of IBA.
Management Discussion“With
fiscal 2020 now behind us, I’m proud to say that DLH has, once
again, performed very well under rather unpredictable and
challenging circumstances – solidifying its leadership position in
the federal markets we serve,” stated DLH President and Chief
Executive Officer Zach Parker. “Revenue for the year topped $209.2
million, operating income rose to $13.5 million, and we generated
$19.5 million in cash from operations. We continued to pay down
debt and invest in new business development activities,
strengthening our management team while winning new contracts,
including some dedicated to helping find a vaccine for
COVID-19.
“In addition, we just completed the acquisition
of Irving Burton Associates, significantly improving our position
within several key military agencies and bolstering our
capabilities in research and engineering, data analytics, and
artificial intelligence. With this latest transaction under our
belt – which brought a backlog of over $140 million – we believe we
have successfully transformed DLH into a well-rounded, advanced
technology enterprise. We have broad capabilities to meet the needs
of our three core markets and have laid the foundation for future
growth. Utilizing our secure, cloud-based applications and highly
credentialed staff, we will focus on further differentiating the
Company and increasing our penetration with the agencies we serve,
expanding in areas where we can provide higher value-added
solutions. DLH is well-positioned as we start fiscal 2021 on strong
financial footing. With a clear track record of execution, we
intend to continue to use our cash flow to de-lever the Company,
invest for the future, and work to increase returns for our
shareholders.”
Results for the Three Months Ended
September 30, 2020Revenue for the fourth quarter of
fiscal 2020 was $50.7 million versus $54.2 million in the
prior-year period. The decrease was due primarily to deferrals in
monitoring and compliance programs and reduction of non-labor costs
from the changing business conditions due to the ongoing
pandemic.
Income from operations was $2.7 million for the
quarter versus $3.4 million in the prior-year period and, as a
percent of revenue, the Company reported an operating margin of
5.3% in fiscal 2020 versus 6.3% in fiscal 2019. The current year
fourth quarter performance reflects $0.9 million of acquisition
costs (related to IBA), partially offset by lower general and
administrative (G&A) expenses and reduced depreciation and
amortization expense. Interest expense in the quarter declined to
$0.8 million, versus $1.2 million for the three months ended
September 30, 2019, due to lower outstanding debt for most of
the period, prior to the acquisition of IBA. Income before taxes
was $1.9 million for the quarter versus $2.2 million in fiscal
2019, representing 3.8% and 4.1% of revenue, respectively, for each
quarter.
For the three months ended September 30,
2020 and 2019, DLH recorded a $0.6 million provision for tax
expense in each period. The Company reported net income of
approximately $1.4 million, or $0.10 per diluted share, for the
fourth quarter of fiscal 2020 versus $1.6 million, or $0.12 per
diluted share, for the fourth quarter of fiscal 2019. As a percent
of revenue, net income was 2.7% for the fourth quarter of fiscal
2020 versus 2.9% for the prior year period.
On a non-GAAP basis, EBITDA for the three months
ended September 30, 2020 was approximately $4.4 million versus
$5.3 million in the prior-year period, or 8.6% and 9.8% of revenue,
respectively, with the current quarter's performance reflecting the
impact of $0.9 million in acquisition costs.
Key Financial IndicatorsDLH
generated $19.5 million in operating cash during fiscal 2020,
versus $18.0 million last year. Senior bank debt was reduced by
$19.0 million for the fiscal year and $33.0 million since the June
2019 acquisition, resulting in a remaining debt balance of $37.0
million, prior to closing the IBA acquisition on September 30. The
Company anticipates strong operating cash flow in fiscal 2021, and
intends to continue using free cash flow to make debt prepayments
when possible.
As of September 30, 2020, the Company had
cash and cash equivalents of $1.4 million and debt outstanding of
$70.0 million, versus cash of $1.8 million and debt outstanding of
$56.0 million as of September 30, 2019. DLH financed the
acquisition of IBA (which closed on September 30, 2020) through an
amendment to its existing secured credit facility, comprised of a
syndicated term loan of $70.0 million and revolving credit facility
of $25.0 million. At September 30, 2020, the Company did not have
any outstanding balance on the revolving credit facility.
At September 30, 2020, total backlog was
approximately $688.4 million compared to $414.1 million as of
September 30, 2019, representing growth of 66.2% from the prior
year. The increase in backlog was primarily due to successful
recompete of the Head Start contract and the acquired backlog from
IBA. Funded backlog was approximately $121.3 million and unfunded
backlog was $567.1 million.
Fiscal Year 2021 Expectations for
Non-Operational ExpensesThe Company expects interest
expense of approximately $3.0 million for fiscal 2021, based on its
fixed rate debt and a projection of interest expense on its
floating rate debt of 1.0% LIBOR, plus applicable credit spread.
The Company expects fiscal year 2021 amortization of acquired
intangibles of $1.5 million from the IBA transaction completed on
September 30, 2020, reflecting allocation of approximately $30.0
million of the purchase price to intangible assets, with average
lives of 10 years. The Company expects total amortization,
including from prior acquisitions, to be $6.3 million in fiscal
year 2021. In addition, the Company anticipates its tax rate to
remain at 29.0% for fiscal 2021 and will continue to leverage the
favorable tax attributes of acquisitions and net operating losses
to minimize required cash payments.
Conference Call and Webcast
DetailsDLH management will discuss fourth 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 on December 7, 2020. 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 (NASDAQ:DLHC) ) is a comprehensive health
solutions and services provider that delivers a full range of
technology-enabled health services across various civilian
agencies, the military health system, and the Veterans
Administration. The Company's services range from providing virtual
pharmacy health consultation for CHAMPVA beneficiaries to veteran
pharmacy fulfillment and medical logistics; conducting scientific
research and clinical trials toward disease prevention and health
promotion; performing medical research and development and
enhancing health information technology systems (including
telemedicine and electronic health records); and evaluating policy
deployment and compliance with applicable protocols and guidelines,
with a goal of enhancing the Company's readiness posture while
providing safe, effective and integrated solutions and services to
the public, armed service members, and veterans who have secured
this nation's freedom. DLH has over 2,200 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 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 the IBA or any future acquisition; the
challenges of managing larger and more widespread operations
resulting from the 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 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 our recent acquisition and any of 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 |
TABLES TO FOLLOW
DLH HOLDINGS
CORP.CONSOLIDATED STATEMENTS OF
INCOME(Amounts in thousands except per share amounts)
|
|
Three Months Ended |
|
Twelve Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Revenue |
|
$ |
50,691 |
|
|
$ |
54,183 |
|
|
$ |
209,185 |
|
|
$ |
160,391 |
|
Cost of Operations: |
|
|
|
|
|
|
|
|
Contract costs |
|
39,701 |
|
|
41,803 |
|
|
163,596 |
|
|
124,551 |
|
General and administrative costs |
|
5,698 |
|
|
7,067 |
|
|
24,195 |
|
|
20,525 |
|
Acquisition costs |
|
930 |
|
|
— |
|
|
930 |
|
|
1,391 |
|
Depreciation and amortization |
|
1,664 |
|
|
1,919 |
|
|
7,003 |
|
|
3,956 |
|
Total operating costs |
|
47,993 |
|
|
50,789 |
|
|
195,724 |
|
|
150,423 |
|
Income from operations |
|
2,698 |
|
|
3,394 |
|
|
13,461 |
|
|
9,968 |
|
Interest expense, net |
|
781 |
|
|
1,190 |
|
|
3,441 |
|
|
2,473 |
|
Income before income taxes |
|
1,917 |
|
|
2,204 |
|
|
10,020 |
|
|
7,495 |
|
Income tax expense |
|
554 |
|
|
639 |
|
|
2,906 |
|
|
2,171 |
|
Net income |
|
$ |
1,363 |
|
|
$ |
1,565 |
|
|
$ |
7,114 |
|
|
$ |
5,324 |
|
|
|
|
|
|
|
|
|
|
Net income per share -
basic |
|
$ |
0.11 |
|
|
$ |
0.13 |
|
|
$ |
0.58 |
|
|
$ |
0.44 |
|
Net income per share -
diluted |
|
$ |
0.10 |
|
|
$ |
0.12 |
|
|
$ |
0.54 |
|
|
$ |
0.41 |
|
Weighted average common shares
outstanding |
|
|
|
|
|
|
|
|
Basic |
|
12,390 |
|
|
12,036 |
|
|
12,282 |
|
|
12,018 |
|
Diluted |
|
13,356 |
|
|
13,016 |
|
|
13,105 |
|
|
13,041 |
|
|
|
|
|
|
|
|
|
|
DLH HOLDINGS
CORP.CONSOLIDATED BALANCE SHEETS(Amounts
in thousands except par value of shares)
|
|
September 30,2020 |
|
September 30,2019 |
ASSETS |
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents |
|
$ |
1,357 |
|
|
$ |
1,790 |
|
Accounts receivable |
|
32,541 |
|
|
23,226 |
|
Other current assets |
|
3,499 |
|
|
1,831 |
|
Total current assets |
|
37,397 |
|
|
26,847 |
|
Equipment and improvements,
net |
|
3,339 |
|
|
5,343 |
|
Operating lease right-of-use
assets |
|
22,427 |
|
|
— |
|
Deferred taxes, net |
|
37 |
|
|
2,345 |
|
Goodwill |
|
67,144 |
|
|
52,758 |
|
Intangible assets, net |
|
52,612 |
|
|
41,208 |
|
Other long-term assets |
|
606 |
|
|
757 |
|
Total
assets |
|
$ |
183,562 |
|
|
$ |
129,258 |
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS’ EQUITY |
|
|
|
|
Current liabilities: |
|
|
|
|
Debt obligations - current, net of deferred financing costs |
|
$ |
6,727 |
|
|
$ |
— |
|
Operating lease liabilities - current |
|
2,045 |
|
|
— |
|
Accrued payroll |
|
10,611 |
|
|
8,852 |
|
Accounts payable, accrued expenses, and other current
liabilities |
|
28,578 |
|
|
20,633 |
|
Total current liabilities |
|
47,961 |
|
|
29,485 |
|
Long-term liabilities: |
|
|
|
|
Operating lease liabilities - long-term |
|
21,620 |
|
|
— |
|
Debt obligations - long term, net of deferred financing costs |
|
60,544 |
|
|
53,629 |
|
Other long-term liabilities |
|
— |
|
|
573 |
|
Total long-term
liabilities |
|
82,164 |
|
|
54,202 |
|
Total
liabilities |
|
130,125 |
|
|
83,687 |
|
Shareholders' equity: |
|
|
|
|
Common stock, $0.001 par
value; authorized 40,000 shares; issued and outstanding 12,404 and
12,036 at September 30, 2020 and 2019, respectively |
|
12 |
|
|
12 |
|
Additional paid-in capital |
|
85,868 |
|
|
85,114 |
|
Accumulated deficit |
|
(32,443 |
) |
|
(39,555 |
) |
Total shareholders’
equity |
|
53,437 |
|
|
45,571 |
|
Total liabilities and
shareholders' equity |
|
$ |
183,562 |
|
|
$ |
129,258 |
|
|
|
|
|
|
|
|
|
|
DLH HOLDINGS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS(Amounts in
thousands)
|
|
Twelve Months Ended |
|
|
September 30, |
|
|
2020 |
|
2019 |
Operating
activities |
|
|
|
|
Net income |
|
$ |
7,114 |
|
|
$ |
5,324 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
Depreciation and amortization expense |
|
7,003 |
|
|
3,956 |
|
Amortization of deferred financing costs |
|
721 |
|
|
982 |
|
Stock based compensation expense |
|
910 |
|
|
790 |
|
Deferred taxes, net |
|
2,308 |
|
|
1,792 |
|
Non-cash gain from lease modification |
|
(121 |
) |
|
— |
|
Changes in operating assets and liabilities |
|
|
|
|
Accounts receivable |
|
(5,408 |
) |
|
617 |
|
Other current assets |
|
(1,592 |
) |
|
(57 |
) |
Accrued payroll |
|
489 |
|
|
178 |
|
Accounts payable, accrued expenses, and other current
liabilities |
|
7,188 |
|
|
5,262 |
|
Other long-term assets/liabilities |
|
839 |
|
|
(805 |
) |
Net cash provided by operating activities |
|
19,451 |
|
|
18,039 |
|
|
|
|
|
|
Investing
activities |
|
|
|
|
Business acquisition, net of cash acquired |
|
(32,678 |
) |
|
(67,079 |
) |
Purchase of equipment and improvements |
|
(152 |
) |
|
(405 |
) |
Net cash used in investing activities |
|
(32,830 |
) |
|
(67,484 |
) |
Financing
activities |
|
|
|
|
Borrowing on senior debt |
|
33,000 |
|
|
70,000 |
|
Repayments of senior debt |
|
(19,000 |
) |
|
(21,708 |
) |
Repurchase of common stock |
|
(211 |
) |
|
— |
|
Payment of deferred financing costs |
|
(898 |
) |
|
(3,451 |
) |
Proceeds from issuance of common stock upon exercise of
options |
|
55 |
|
|
39 |
|
Net cash provided by financing activities |
|
12,946 |
|
|
44,880 |
|
|
|
|
|
|
Net change in cash and cash
equivalents |
|
(433 |
) |
|
(4,565 |
) |
Cash and cash equivalents at
beginning of year |
|
1,790 |
|
|
6,355 |
|
Cash and cash
equivalents at end of year |
|
$ |
1,357 |
|
|
$ |
1,790 |
|
|
|
|
|
|
Supplemental
disclosures of cash flow information |
|
|
|
|
Cash paid during the period for interest |
|
$ |
2,806 |
|
|
$ |
1502 |
|
Cash paid during the period for income taxes |
|
$ |
917 |
|
|
$ |
543 |
|
|
|
|
|
|
|
|
|
|
Revenue Metrics
|
|
Twelve Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2020 |
|
2019 |
Market
Mix: |
|
|
|
|
Defense/VA |
|
49 |
% |
|
58 |
% |
Human Services and
Solutions |
|
20 |
% |
|
25 |
% |
Public Health/Life
Sciences |
|
31 |
% |
|
17 |
% |
|
|
|
|
|
Contract
Mix: |
|
|
|
|
Time and materials |
|
70 |
% |
|
84 |
% |
Cost reimbursable |
|
28 |
% |
|
14 |
% |
Firm fixed price |
|
2 |
% |
|
2 |
% |
|
|
|
|
|
Prime vs
Sub: |
|
|
|
|
Prime |
|
92 |
% |
|
96 |
% |
Subcontractor |
|
8 |
% |
|
4 |
% |
|
|
|
|
|
|
|
Non-GAAP Financial MeasuresThe
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.
The Company incurred $0.9 million of
acquisition-related costs in fiscal 2020 and $1.4 million of
acquisition-related costs in fiscal 2019. The Company is excluding
acquisition-related costs from this measure because they were
incurred as a result of a specific event, do not reflect the costs
of operations, and can affect the period-over-period assessment of
operating results. In addition, we are including net income
adjusted for the acquisition costs, in total and on a per share
basis, presented on a tax-effected basis. We are reporting this
non-GAAP metric to demonstrate the impact of these events.
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:
(amounts in thousands) |
|
Three Months Ended |
|
Twelve Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2020 |
|
|
2019 |
|
|
Change |
|
2020 |
|
|
2019 |
|
|
Change |
Net income |
|
$ |
1,363 |
|
|
$ |
1,565 |
|
|
$ |
(202 |
) |
|
$ |
7,114 |
|
|
$ |
5,324 |
|
|
$ |
1,790 |
|
(i) Interest expense, net |
|
781 |
|
|
1,190 |
|
|
(409 |
) |
|
3,441 |
|
|
2,473 |
|
|
968 |
|
(ii) Provision for taxes |
|
554 |
|
|
639 |
|
|
(85 |
) |
|
2,906 |
|
|
2,171 |
|
|
735 |
|
(iii) Depreciation and
amortization |
|
1,664 |
|
|
1,919 |
|
|
(255 |
) |
|
7,003 |
|
|
3,956 |
|
|
3,047 |
|
EBITDA |
|
$ |
4,362 |
|
|
$ |
5,313 |
|
|
$ |
(951 |
) |
|
$ |
20,464 |
|
|
$ |
13,924 |
|
|
$ |
6,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income as a % of
revenue |
|
2.7 |
% |
|
2.9 |
% |
|
|
(0.2 |
)% |
|
3.4 |
% |
|
3.3 |
% |
|
0.1 |
% |
EBITDA as a % of revenue |
|
8.6 |
% |
|
9.8 |
% |
|
|
(1.2 |
)% |
|
9.8 |
% |
|
8.7 |
% |
|
1.1 |
% |
Revenue |
|
$ |
50,691 |
|
|
$ |
54,183 |
|
|
$ |
(3,492 |
) |
|
$ |
209,185 |
|
|
$ |
160,391 |
|
|
$ |
48,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of GAAP net income to net
income adjusted for the effect of acquisition costs, a non-GAAP
measure:
|
|
Three Months Ended |
|
Twelve Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2020 |
|
2019 |
|
Change |
|
2020 |
|
2019 |
|
Change |
Net income |
|
$ |
1,363 |
|
|
$ |
1,565 |
|
|
$ |
(202 |
) |
|
$ |
7,114 |
|
|
$ |
5,324 |
|
|
$ |
1,790 |
|
Acquisition costs |
|
930 |
|
|
— |
|
|
930 |
|
|
930 |
|
|
1,391 |
|
|
(461 |
) |
Tax effect of excluding
acquisition costs |
|
(270 |
) |
|
— |
|
|
(270 |
) |
|
(270 |
) |
|
(403 |
) |
|
133 |
|
Net income adjusted
for the acquisition costs |
|
$ |
2,023 |
|
|
$ |
1,565 |
|
|
$ |
458 |
|
|
$ |
7,774 |
|
|
$ |
6,312 |
|
|
$ |
1,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per diluted shares
outstanding |
|
$ |
0.10 |
|
|
$ |
0.12 |
|
|
$ |
(0.02 |
) |
|
$ |
0.54 |
|
|
$ |
0.41 |
|
|
$ |
0.13 |
|
Impact of acquisition costs,
net |
|
0.05 |
|
|
— |
|
|
0.05 |
|
|
0.05 |
|
|
0.08 |
|
|
(0.03 |
) |
Net income per diluted
shares adjusted for the acquisition costs |
|
$ |
0.15 |
|
|
$ |
0.12 |
|
|
$ |
0.03 |
|
|
$ |
0.59 |
|
|
$ |
0.49 |
|
|
$ |
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average of diluted
common shares outstanding |
|
13,356 |
|
|
13,016 |
|
|
|
|
13,105 |
|
|
13,041 |
|
|
|
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