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Industrials

Business Services

DLH Holdings Corp.

<p><strong>Fiscal Fourth Quarter and Full Year 2021 Results</strong></p>
<div>Revenue for the fourth quarter of fiscal 2021 was $65.2 million versus $50.7 million in the prior-year period. The increase was due to the Company&#8217;s IBA acquisition, completed September 30, 2020, which added approximately $8.5 million in revenue, new business awards in the quarter, and increased volume across legacy programs.</div>
<div> </div>
<div>Income from operations was $4.0 million for the quarter versus $2.7 million in the prior-year period and, as a percent of revenue, the Company reported an operating margin of 6.2% in fiscal 2021 versus 5.3% 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. This more than offset an increase in depreciation and amortization as well as higher general and administrative costs, which rose due to incremental corporate development costs associated with a transaction that was pursued but not executed.   </div>
<div> </div>
<div>The Company reported net income of approximately $2.9 million, or $0.21 per diluted share, for the fourth quarter of fiscal 2021 versus $1.4 million, or $0.10 per diluted share, for the fourth quarter of fiscal 2020. As a percent of revenue, net income was 4.4% for the fourth quarter of fiscal 2021 versus 2.7% for the prior year period.   </div>
<div> </div>
<div>EBITDA for the fiscal 2021 fourth quarter was approximately $6.0 million versus $4.4 million in the prior-year period, or 9.3% and 8.6% of revenue, respectively.</div>
<div> </div>
<div>
<div>For fiscal 2022, revenue was $246.1 million, an increase of $36.9 million or 17.6% over the prior year period. The increase is partially due to the inclusion of IBA for the full year in fiscal year 2021. IBA contributed $30.2 of revenue for fiscal year 2021. The remaining net growth was due to contract expansion on existing contracts and new contracts awarded during the fiscal year.</div>
<p>The impact of IBA can really be seen in the following two charts. Note how revenue from the Defense Department and the Veterans&#8217; Administration increased on both an absolute basis year-over-year as well as a percentage of overall revenue. The modest decline in HSS revenues are related to an absence of past through revenue for part of the year as a result of COVID.&nbsp;</p>
</div>
<p><img decoding="async" src="https://www.noblelinx.com/x/research/images/reports/DLHCRevBreak.PNG" />   </p>
<p> DLH major customers are broken out in the following table. The increase in revenue derived from the VA reflects on going program increases in the two major VA contracts, while the increase in Defense related revenue is due to the inclusion of IBA.</p>
<p><img decoding="async" src="https://www.noblelinx.com/x/research/images/reports/DLHCCustomers.PNG" style="width: 475px;height: 221px" />   </p>
<p>Operating income for fiscal 2021 was $17.2 million, or a margin of 7.0%. Operating income during the year was negatively impacted by $1.1 million of costs related to an acquisition that did not go through. In fiscal 2020 operating income was $13.5 million, or a margin of 6.4%. Corporate development costs negatively impacted operating income by $0.9 million for the year. Net income for the year was $10.1 million, a net margin of 4.1% compared to $7.1 million, or a net margin of 3.4% in fiscal 2020. Fiscal 2021 diluted EPS was $0.75 compared to $0.54 in fiscal 2020.&nbsp;</p>
<p>EBITDA for the year ended September 30, 2021 was approximately $25.3 million, an increase of approximately $4.9 million, or 23.8%, over the prior fiscal year. EBITDA margin was 10.3% compared to 9.8% last fiscal year.   </p>
<p><strong>Debt Paydown</strong></p>
<p>As usual practice, DLH focused on applying cash flow to reduce debt. DLH generated $45.7 million in operating cash, inclusive of a $21.1 million advance payment related to the FEMA contract awarded in late September. The Company paid down $23.2 million of its secured loan facility and has satisfied mandatory principal amortization on the loan facility until December 31, 2023. We expect the Company to continue using cash to make debt prepayments when possible. Management&#8217;s goal is for an additional $18-$20 million of debt reduction in fiscal 2022.</p>
<p>As of September&nbsp;30, 2021, the Company had cash and cash equivalents of $24.1 million and debt outstanding under its credit facility of $46.8 million, versus cash of $1.4 million and debt outstanding of $70.0 million as of September 30, 2020. The increase in cash was primarily due to an advance payment to fund deployment of emergency medical resources under the FEMA contract awarded in late September.</p>
<p><strong>Major Contracts/Awards</strong>   </p>
<div>In fiscal 2021, the nine contracts for pharmacy services generated approximately $62.8 million of revenue, up from $56.5 million of revenue in fiscal 2020. As we have previously highlighted, the&nbsp;government has canceled the previously issued RFP for these contracts. The government has neither indicated nor announced its future procurement strategy. DLH is currently operating under a bridge contract through October 2022.</div>
<div> </div>
<div>The remaining seven contracts for logistics services generated approximately $47.2 million of revenue in fiscal 2021, up from $43.7 million in fiscal 2020. In April 2021, DLH was awarded a follow-on contract to provide medical logistics to the VA&#8217;s CMOP program. The contract award was protested and subsequently canceled during the third quarter of fiscal year 2021. The contract award was canceled in accordance with procurement requirements to allow the government sufficient time to address administrative concerns raised in the protest about the procurement process. Once the government completes this process, we expect DLH to be awarded a new contract. In the interim, the existing contract has been extended through November 2022.   </div>
<p>The HHS contract in support of the Head Start program generated $28.2 million and $32.4 million of revenue for the years ended September 30, 2021 and 2020, respectively. This contract has a period of performance through April 2025.   </p>
<p>In September and in October, DLH was awarded two short-term task orders under a FEMA contract to provide support for states seeking temporary medical staffing support and COVID-19 related community testing, vaccination and therapy. The ceiling value of these awards is approximately $107 million over base periods of three months. Notably, the customer has exercised the first of three one month contract options on the medical staffing task order, which has additional value of approximately $35 million. This option is expected to be earned in DLH&#8217;s second quarter of fiscal year 2022. Additional options may be exercised, and would be expected to impact the second quarter financial performance. The operating margin on these FEMA task orders will be approximately 5% of revenue.&nbsp;   </p>
<p><strong>Backlog</strong></p>
<div>At fiscal year-end, total backlog was approximately $651.5 million compared to $688.4 million as of September 30, 2020. At September 30, 2021, funded backlog was approximately $191.0 million and unfunded backlog was $460.5 million.</div>
<p><strong>Updated Projections</strong>   </p>
<p> Fiscal 2022 is already being impacted by some unusual items. First are the short-term FEMA contracts. It is difficult to predict how much additional, if any, funding DLH will receive under any contract extensions or if additional states take advantage of the FEMA program. Any additional awards will be accretive to the Company&#8217;s results, in our view. In addition, COVID and related orders and mandates continue to place additional uncertainties on the operating environment.</p>
<p>Finally, the Federal Government is currently operating under a Continuing Resolution (CR). While Congress has not completed the final appropriation bills for the government&#8217;s 2022 fiscal year, we believe that DLH&#8217;s key programs benefit from bipartisan support and do not expect a material impact on the current business base from budget negotiations. However, the CR may result in delays in new program starts, delays in contract award decisions, and other factors, which could negatively impact the business. On December 2, 2021, Congress passed and, on December 3, 2021, the President signed, a CR providing funds to the federal government through February 18, 2022.&nbsp;</p>
<p>With that as a background, for the fiscal first quarter, we are projecting revenue of $158 million, which includes the majority of the $107 million of FEMA business. (The additional option one revenue of $35 million will impact the fiscal second quarter.) In the fiscal first quarter of 2021, DLH generated revenue of $57.9 million. We are projecting net income of $6.5 million and EPS of $0.48. Last year, DLH had net income of $1.8 million, or EPS of $0.13. We will note that due to certain tax planning measures, DLH&#8217;s consolidated tax rate should be closer to 25% in fiscal 2022, compared to 28% in fiscal 2021.</p>
<p>For the full year, we are projecting revenue of $393.5 million, net income of $17.3 million, EPS of $1.25, and adjusted EBITDA of $33.8 million.&nbsp;</p>


DLH Holdings Corp. (DLHC)

Primed for Growth

Fundamental Analysis:

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Post Call Commentary: Ready to Pounce (DLHC)

Better Than Expected Third Quarter Results (DLHC)

Post Call Update (DLHC)

Releases 2Q23 Results (DLHC)

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