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 first quarter ended
December 31, 2020.
Highlights
- First quarter revenue increased to
$57.9 million in fiscal 2021 from $52.2 million in fiscal 2020,
reflecting the acquisition of Irving Burton Associates
(“IBA”).
- Operating margins rose to 6.3% in
the current year first quarter from 6.0% in the prior-year
period.
- Earnings were $1.8 million, or
$0.13 per diluted share, for the fiscal 2021 first quarter versus
$1.6 million, or $0.12 per diluted share, for the first quarter of
fiscal 2020.
- Operating cash of $8.5 million used
in the first quarter, reflecting short-term growth in
receivables.
- Contract backlog was $665.2 million as of December 31, 2020,
providing strong revenue visibility.
Management Discussion“Fiscal
2021 is off to a great start, with solid revenue and strong margins
indicative of how we expect the year to play out,” stated DLH
President and Chief Executive Officer Zach Parker. “Our most recent
acquisition, IBA, contributed nearly $7.0 million to top line
results this quarter, offset in part by a reduction in organic
revenue due principally to restrictions on pass-through travel
within the current COVID-19 environment. Operating margins rose 30
basis points year-over-year, to 6.3%, and we ended the quarter with
a backlog of $665.2 million – reflecting recent wins, including the
previously-announced recompete of work for the AIDS Clinical Trials
Group. At the same time, the pace of contract proposal activity has
picked up, representing an increased diversity of program sizes and
types for which DLH is now qualified to bid due to our broad range
of applications – from military healthcare and research to
telehealth capabilities and secure cloud computing. We’re able to
leverage our combined skills and credentials to focus on new and
expanding areas of government health programs.
“During the quarter growth in receivables
prevented the paydown of debt we have come to expect. However, this
was short-term in nature and largely reflected the impact of the
Continuing Resolution on the fiscal 2021 federal budget, finally
signed on December 27. In addition, a transition in key contract
payment offices caused a delay in collection which has since been
resolved. As such, we anticipate strong cash flow in the second
quarter, leading to a resumption of our de-levering efforts.
Overall, I’m pleased with our results and the outlook for fiscal
2021 given the many opportunities for growth we see coming to
fruition this year.”
Results for the Three Months Ended
December 31, 2020Revenue for the first quarter of
fiscal 2021 was $57.9 million versus $52.2 million in the
prior-year period. The increase was due to the Company’s IBA
acquisition, completed September 30, 2020, which added
approximately $7.0 million in revenue, offset in part by reductions
in organic revenue principally from reimbursement of travel
expenses, as compared to the prior-year period. These expenses were
not incurred and, therefore, were not billed to the government due
to the COVID-19 pandemic.
Income from operations was $3.6 million for the
quarter versus $3.1 million in the prior-year period and, as a
percent of revenue, the Company reported an operating margin of
6.3% in fiscal 2021 versus 6.0% in fiscal 2020. The current year
first quarter performance reflects improved program mix, partially
offset by higher general and administrative (G&A) expenses,
which as a percent of revenue decreased 70 basis points. Interest
expense in the quarter increased to $1.1 million, versus $0.9
million for the three months ended December 31, 2019, due to
higher outstanding debt levels, reflecting the acquisition of IBA.
Income before taxes was $2.6 million for the quarter versus $2.2
million in fiscal 2020, representing 4.4% and 4.2% of revenue,
respectively, for each period.
For the three months ended December 31,
2020 and 2019, DLH recorded a $0.7 million and $0.6 million
provision for tax expense in each period, respectively. The Company
reported net income of approximately $1.8 million, or $0.13 per
diluted share, for the first quarter of fiscal 2021 versus $1.6
million, or $0.12 per diluted share, for the first quarter of
fiscal 2020. As a percent of revenue, net income was 3.1% for the
first quarter of fiscal 2021 versus 3.0% for the prior year
period.
On a non-GAAP basis, EBITDA for the three months
ended December 31, 2020 was approximately $5.7 million versus
$5.0 million in the prior-year period, or 9.8% and 9.5% of revenue,
respectively.
Key Financial IndicatorsDLH
used $8.5 million in operating cash during the fiscal 2021 first
quarter, versus $2.9 million last year, reflecting the previously
described delays in collections which have been largely resolved.
The Company anticipates strong operating cash flow in the fiscal
second quarter and intends to resume using cash to make debt
prepayments when possible.
As of December 31, 2020, the Company had
cash and cash equivalents of $0.4 million and debt outstanding
under its credit facility of $77.4 million, versus cash of $1.4
million and debt outstanding of $70.0 million as of September 30,
2020.
At December 31, 2020, total backlog was
approximately $665.2 million, including funded backlog of
approximately $103.9 million, and unfunded backlog of $561.3
million.
Conference Call and Webcast
DetailsDLH management will discuss first 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, February 3, 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 (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.
CONTACT:
|
INVESTOR RELATIONS |
|
Contact: Chris Witty |
|
Phone: 646-438-9385 |
|
Email: cwitty@darrowir.com |
TABLES TO FOLLOWDLH HOLDINGS
CORP.CONSOLIDATED STATEMENTS OF
INCOME(Amounts in thousands except per share amounts)
| |
|
(unaudited) |
| |
|
Three Months Ended |
| |
|
December 31, |
| |
|
2020 |
|
2019 |
|
Revenue |
|
$ |
57,852 |
|
|
$ |
52,238 |
|
| Cost of Operations: |
|
|
|
|
|
Contract costs |
|
46,005 |
|
|
41,340 |
|
|
General and administrative costs |
|
6,150 |
|
|
5,913 |
|
|
Depreciation and amortization |
|
2,062 |
|
|
1,859 |
|
|
Total operating costs |
|
54,217 |
|
|
49,112 |
|
|
Income from operations |
|
3,635 |
|
|
3,126 |
|
| Interest expense, net |
|
1,080 |
|
|
941 |
|
|
Income before income taxes |
|
2,555 |
|
|
2,185 |
|
| Income tax expense |
|
741 |
|
|
634 |
|
|
Net income |
|
$ |
1,814 |
|
|
$ |
1,551 |
|
| |
|
|
|
|
| Net income per share -
basic |
|
$ |
0.15 |
|
|
$ |
0.13 |
|
| Net income per share -
diluted |
|
$ |
0.13 |
|
|
$ |
0.12 |
|
| Weighted average common shares
outstanding |
|
|
|
|
|
Basic |
|
12,498 |
|
|
12,088 |
|
|
Diluted |
|
13,445 |
|
|
13,014 |
|
| |
|
|
|
|
| |
|
|
|
|
DLH HOLDINGS
CORP.CONSOLIDATED BALANCE SHEETS(Amounts
in thousands except par value of shares)
| |
|
December 31,2020 |
|
September 30,2020 |
| |
|
(unaudited) |
|
|
| ASSETS |
|
|
|
|
| Current assets: |
|
|
|
|
|
Cash and cash equivalents |
|
$ |
370 |
|
|
$ |
1,357 |
|
|
Accounts receivable |
|
44,885 |
|
|
32,541 |
|
|
Other current assets |
|
3,468 |
|
|
3,499 |
|
| Total current assets |
|
48,723 |
|
|
37,397 |
|
| Equipment and improvements,
net |
|
2,976 |
|
|
3,339 |
|
| Operating lease right-of-use
assets |
|
21,737 |
|
|
22,427 |
|
| Deferred taxes, net |
|
— |
|
|
37 |
|
| Goodwill |
|
65,450 |
|
|
67,144 |
|
| Intangible assets, net |
|
52,408 |
|
|
52,612 |
|
| Other long-term assets |
|
572 |
|
|
606 |
|
| Total
assets |
|
$ |
191,866 |
|
|
$ |
183,562 |
|
| |
|
|
|
|
| LIABILITIES AND
SHAREHOLDERS’ EQUITY |
|
|
|
|
| Current liabilities: |
|
|
|
|
|
Debt obligations - current, net of deferred financing costs |
|
$ |
15,884 |
|
|
$ |
6,727 |
|
|
Operating lease liabilities - current |
|
2,053 |
|
|
2,045 |
|
|
Accrued payroll |
|
10,073 |
|
|
10,611 |
|
|
Accounts payable, accrued expenses, and other current
liabilities |
|
27,392 |
|
|
28,578 |
|
| Total current liabilities |
|
55,402 |
|
|
47,961 |
|
| Long-term liabilities: |
|
|
|
|
|
Deferred taxes, net |
|
589 |
|
|
— |
|
|
Debt obligations - long term, net of deferred financing costs |
|
58,923 |
|
|
60,544 |
|
|
Operating lease liabilities - long-term |
|
21,017 |
|
|
21,620 |
|
| Total long-term
liabilities |
|
80,529 |
|
|
82,164 |
|
| Total
liabilities |
|
135,931 |
|
|
130,125 |
|
| Shareholders' equity: |
|
|
|
|
| Common stock, $0.001 par
value; authorized 40,000 shares; issued and outstanding 12,544 and
12,404 at December 31, 2020 and September 30, 2020,
respectively |
|
13 |
|
|
12 |
|
|
Additional paid-in capital |
|
86,551 |
|
|
85,868 |
|
|
Accumulated deficit |
|
(30,629 |
) |
|
(32,443 |
) |
| Total shareholders’
equity |
|
55,935 |
|
|
53,437 |
|
| Total liabilities and
shareholders' equity |
|
$ |
191,866 |
|
|
$ |
183,562 |
|
| |
|
|
|
|
|
|
|
|
DLH HOLDINGS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS(Amounts in
thousands)
| |
|
Three Months Ended |
| |
|
December 31, |
| |
|
2020 |
|
2019 |
| |
|
(unaudited) |
|
|
| Operating
activities |
|
|
|
|
|
Net income |
|
$ |
1,814 |
|
|
$ |
1,551 |
|
|
Adjustments to reconcile net income to net cash used in operating
activities: |
|
|
|
|
|
Depreciation and amortization expense |
|
2,062 |
|
|
1,859 |
|
|
Amortization of deferred financing costs |
|
210 |
|
|
210 |
|
|
Stock based compensation expense |
|
458 |
|
|
203 |
|
|
Deferred taxes, net |
|
626 |
|
|
535 |
|
|
Non-cash gain from lease modification |
|
— |
|
|
(121 |
) |
|
Changes in operating assets and liabilities |
|
|
|
|
|
Accounts receivable |
|
(12,344 |
) |
|
(4,769 |
) |
|
Other current assets |
|
284 |
|
|
(147 |
) |
|
Accrued payroll |
|
(538 |
) |
|
(254 |
) |
|
Accounts payable, accrued expenses, and other current
liabilities |
|
(1,185 |
) |
|
(2,103 |
) |
|
Other long-term assets/liabilities |
|
95 |
|
|
152 |
|
|
Net cash (used in) operating activities |
|
(8,518 |
) |
|
(2,884 |
) |
| |
|
|
|
|
| Investing
activities |
|
|
|
|
|
Purchase of equipment and improvements |
|
(53 |
) |
|
(162 |
) |
|
Net cash (used in) investing activities |
|
(53 |
) |
|
(162 |
) |
| Financing
activities |
|
|
|
|
|
Borrowing on revolving line of credit, net |
|
9,150 |
|
|
1,800 |
|
|
Repayments of senior debt |
|
(1,750 |
) |
|
— |
|
|
Payment of deferred financing costs |
|
(41 |
) |
|
(3 |
) |
|
Repurchased shares of common stock |
|
— |
|
|
(206 |
) |
|
Proceeds from issuance of common stock upon exercise of
options |
|
225 |
|
|
27 |
|
|
Net cash provided by financing activities |
|
7,584 |
|
|
1,618 |
|
| |
|
|
|
|
| Net change in cash and cash
equivalents |
|
(987 |
) |
|
(1,428 |
) |
| Cash and cash equivalents at
beginning of year |
|
1,357 |
|
|
1,790 |
|
| Cash and cash
equivalents at end of year |
|
$ |
370 |
|
|
$ |
362 |
|
| |
|
|
|
|
| Supplemental
disclosures of cash flow information |
|
|
|
|
|
Cash paid during the period for interest |
|
$ |
852 |
|
|
$ |
845 |
|
| Supplemental
disclosures of non-cash activity |
|
|
|
|
|
Non-cash cancellation of common stock |
|
$ |
— |
|
|
$ |
95 |
|
Revenue Metrics
| |
|
Three Months Ended |
| |
|
December 31, |
|
December 31, |
| |
|
2020 |
|
2019 |
| Market
Mix: |
|
|
|
|
|
Defense/VA |
|
60 |
% |
|
46 |
% |
| Human Services and
Solutions |
|
13 |
% |
|
23 |
% |
| Public Health/Life
Sciences |
|
27 |
% |
|
31 |
% |
| |
|
|
|
|
| Contract
Mix: |
|
|
|
|
| Time and materials |
|
77 |
% |
|
70 |
% |
| Cost reimbursable |
|
20 |
% |
|
28 |
% |
| Firm fixed price |
|
3 |
% |
|
2 |
% |
| |
|
|
|
|
| Prime vs
Sub: |
|
|
|
|
| Prime |
|
89 |
% |
|
94 |
% |
| Subcontractor |
|
11 |
% |
|
6 |
% |
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.
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 |
|
| |
|
December 31, |
|
| |
|
2020 |
|
2019 |
|
Change |
|
|
Net income |
|
$ |
1,814 |
|
$ |
1,551 |
|
$ |
263 |
|
| (i) Interest expense, net |
|
1,080 |
|
941 |
|
139 |
|
| (ii) Provision for taxes |
|
741 |
|
634 |
|
107 |
|
| (iii) Depreciation and
amortization |
|
2,062 |
|
1,859 |
|
203 |
|
| EBITDA |
|
$ |
5,697 |
|
$ |
4,985 |
|
$ |
712 |
|
| |
|
|
|
|
|
|
|
| Net income as a % of
revenue |
|
3.1% |
|
3.0% |
|
0.1% |
|
| EBITDA as a % of revenue |
|
9.8% |
|
9.5% |
|
0.3% |
|
| Revenue |
|
$ |
57,852 |
|
$ |
52,238 |
|
$ |
5,614 |
|
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