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DLH Reports Fiscal 2022 Second Quarter Results
ソース: Nasdaq GlobeNewswire / 04 5 2022 16:30:01 America/New_York
Revenue $108.7 Million, Reflecting Short-term FEMA Awards; Earnings $0.50 per share;
Term Debt Reduced to $37.5 MillionATLANTA, May 04, 2022 (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 second quarter ended March 31, 2022.
Highlights
- Second quarter revenue increased to $108.7 million in fiscal 2022 from $61.5 million in fiscal 2021, reflecting the previously-announced award of two FEMA contracts to support Alaska, which accounted for approximately $39.8 million of revenue
- Excluding these short-term contracts, second quarter revenue rose to $68.9 million in fiscal 2022, an increase of 12% over the prior-year period
- Earnings were $7.2 million, or $0.50 per diluted share, for the fiscal 2022 second quarter versus $2.6 million, or $0.19 per diluted share, for the second quarter of fiscal 2021
- Excluding contributions from the aforementioned short-term FEMA contracts, earnings on a non-GAAP basis for the fiscal 2022 second quarter were $3.1 million, or $0.22 per diluted share
- The Company's term loan was reduced to $37.5 million from $42.9 million during the second quarter;
- Contract backlog was $554.7 million as of March 31, 2022 versus $633.6 million at the end of the first quarter, with approximately $30.0 million of the latter related to Alaska-based task orders
Management Discussion
“Our second quarter continued the positive trends of the first, with strong organic revenue growth and contributions from our Alaska contracts resulting in solid financial performance,” said DLH President and Chief Executive Officer Zach Parker. “The overall business, net of short-term FEMA work, expanded 12% year-over-year, reflecting increased demand for services even during a slower-than-anticipated award environment. In addition, we achieved an operating margin of 9.4% and continued our early repayment of acquisition debt.“With passage of the fiscal 2022 omnibus appropriations bill in March, contract decision-making should accelerate – at the same time DLH is expected to benefit from obtaining FedRamp authorization for its Infinibyte® data analytics solutions. We are pleased with the progress we are making to strengthen and diversify our capabilities across the key federal markets we serve. While focused on paying down debt and improving the balance sheet, we continue to actively look at potential acquisitions that may enhance and broaden our portfolio of technology-enabled applications. It’s an exciting time at DLH, with many opportunities ahead of us – leveraging our leadership position in innovative, healthcare-related services and solutions to build a unique, customer-centric enterprise that, at the same time, creates value for our shareholders.”
Results for the Three Months Ended March 31, 2022
Revenue for the second quarter of fiscal 2022 was $108.7 million versus $61.5 million in the prior-year period. The increase was primarily due to the Company’s work for FEMA in Alaska – which added approximately $39.8 million in revenue – along with other new business wins and generally higher volume across a number of legacy programs.Income from operations was $10.3 million for the quarter versus $4.6 million in the prior-year period and, as a percent of revenue, the Company reported an operating margin of 9.4% in fiscal 2022 versus 7.5% in fiscal 2021. Income from operations increased primarily due to performance on the FEMA task orders. Income from operations on the remaining contract portfolio was essentially flat, notwithstanding the increase in revenue, reflecting planned investment in human capital management and business development as we continue to build and strengthen our sustaining business.
Interest expense was $0.6 million in the fiscal second quarter of 2022 versus $1.0 million in the prior-year period, reflecting lower debt outstanding. Income before taxes was $9.7 million this year versus $3.6 million in fiscal 2021, representing 8.9% and 5.9% of revenue, respectively, for each period.
For the three months ended March 31, 2022 and 2021, respectively, DLH recorded a $2.5 million and $1.0 million provision for tax expense. The Company reported net income of approximately $7.2 million, or $0.50 per diluted share, for the second quarter of fiscal 2022 versus $2.6 million, or $0.19 per diluted share, for the second quarter of fiscal 2021. As a percent of revenue, net income was 6.6% for the second quarter of fiscal 2022 versus 4.2% for the prior-year period.
On a non-GAAP basis, EBITDA for the three months ended March 31, 2022 was approximately $12.1 million versus $6.6 million in the prior-year period, or 11.2% and 10.8% of revenue, respectively. A reconciliation of the Company's performance for the quarter less the contribution of the FEMA task orders compared to the prior-year period is included at the back of this document.
Key Financial Indicators
Fiscal year to date, DLH used $14.8 million in operating cash, reflecting performance of the $22.2 million deferred revenue on the aforementioned FEMA contracts, for which there were advance payments in the fourth quarter of fiscal 2021. Excluding the impact of the FEMA contracts, DLH would have generated positive operating cash flow fiscal year to date.Fiscal year to date, accounts receivable increased by $28.7 million, including $13.6 million related to the FEMA contracts, for which the cash flow impact was largely offset by corresponding subcontractor accruals. Both the receivables and corresponding payables on the FEMA contracts were largely settled subsequent to quarter end. The remaining increase in accounts receivable is related to normal fluctuations in the timing of customer payments and to growth in the overall business volume.
As of March 31, 2022, the Company had cash of $0.4 million and debt outstanding under its credit facility of $37.5 million, versus cash of $24.1 million and debt outstanding of $46.8 million as of September 30, 2021. The Company has satisfied mandatory principal amortization on the loan facility until December 31, 2024. Subsequent to the end of the quarter, the Company made additional debt payments, reducing the outstanding balance on the term loan to $33 million. As a result of these payments, DLH retired the $70 million debt associated with the Social & Scientific Systems, Inc. acquisition more than two years early. The Company intends to continue using cash to make debt prepayments when possible.
At March 31, 2022, total backlog was approximately $554.7 million, including funded backlog of approximately $82.4 million and unfunded backlog of $472.3 million.
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 5, 2022. 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 7532524.
About DLH
DLH (NASDAQ:DLHC) 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 2,300 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 acquisitions; the challenges of managing larger and more widespread operations; 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 of acquisitions; the impact of inflation and higher interest rates; 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, 2021, 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)(unaudited) (unaudited) Three Months Ended Six Months Ended March 31, March 31, 2022 2021 2022 2021 Revenue $ 108,699 $ 61,506 $ 261,500 $ 119,358 Cost of Operations: Contract costs 88,831 48,722 221,517 94,727 General and administrative costs 7,733 6,135 14,644 12,285 Depreciation and amortization 1,881 2,029 3,866 4,091 Total operating costs 98,445 56,886 240,027 111,103 Income from operations 10,254 4,620 21,473 8,255 Interest expense, net 554 1,004 1,226 2,084 Income before income taxes 9,700 3,616 20,247 6,171 Income tax expense 2,522 1,049 5,265 1,790 Net income $ 7,178 $ 2,567 $ 14,982 $ 4,381 Net income per share - basic $ 0.56 $ 0.20 $ 1.17 $ 0.35 Net income per share - diluted $ 0.50 $ 0.19 $ 1.04 $ 0.32 Weighted average common shares outstanding Basic 12,778 12,544 12,763 12,521 Diluted 14,442 13,570 14,368 13,568 DLH HOLDINGS CORP.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except par value of shares)March 31,
2022September 30,
2021(unaudited) ASSETS Current assets: Cash $ 359 $ 24,051 Accounts receivable 62,152 33,447 Other current assets 3,599 4,265 Total current assets 66,110 61,763 Equipment and improvements, net 1,427 1,912 Operating lease right-of-use assets 17,999 19,919 Goodwill 65,643 65,643 Intangible assets, net 44,177 47,469 Other long-term assets 398 464 Total assets $ 195,754 $ 197,170 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Operating lease liabilities - current $ 2,216 $ 2,261 Accrued payroll 12,464 9,125 Deferred revenue — 22,273 Accounts payable, accrued expenses, and other current liabilities 44,317 32,717 Total current liabilities 58,997 66,376 Long-term liabilities: Deferred taxes, net 1,176 1,176 Operating lease liabilities - long-term 17,582 19,374 Debt obligations - long-term, net of deferred financing costs 35,638 44,636 Total long-term liabilities 54,396 65,186 Total liabilities 113,393 131,562 Shareholders' equity: Common stock, $0.001 par value; authorized 40,000 shares; issued and outstanding 12,794 and 12,714 at March 31, 2022 and September 30, 2021, respectively 13 13 Additional paid-in capital 89,664 87,893 Accumulated deficit (7,316 ) (22,298 ) Total shareholders’ equity 82,361 65,608 Total liabilities and shareholders' equity $ 195,754 $ 197,170 DLH HOLDINGS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)(unaudited) Six Months Ended March 31, 2022 2021 Operating activities Net income $ 14,982 $ 4,381 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 3,866 4,091 Amortization of deferred financing costs charged to interest expense 319 413 Stock based compensation expense 1,309 844 Deferred taxes, net — 1,512 Changes in operating assets and liabilities Accounts receivable (28,705 ) (9,134 ) Other current assets 666 30 Accrued payroll 3,339 1,401 Deferred revenue (22,273 ) — Accounts payable, accrued expenses, and other current liabilities 11,600 2,245 Other long-term assets and liabilities 82 336 Net cash provided by (used in) operating activities (14,815 ) 6,119 Investing activities Business acquisition adjustment, net of cash acquired — 59 Purchase of equipment and improvements (89 ) (53 ) Net cash provided by (used in) investing activities (89 ) 6 Financing activities Proceeds from debt obligations 13,500 18,950 Repayment of debt obligations (22,750 ) (26,200 ) Payment of deferred financing costs — (43 ) Proceeds from issuance of common stock upon exercise of options and warrants 462 231 Net cash used in financing activities (8,788 ) (7,062 ) Net change in cash (23,692 ) (937 ) Cash at beginning of period 24,051 1,357 Cash at end of period $ 359 $ 420 Supplemental disclosure of cash flow information Cash paid during the period for interest $ 896 $ 1,639 Cash paid during the period for income taxes $ 3,482 $ 184 Revenue Metrics
Six Months Ended March 31, March 31, 2022 2021 Market Mix: Defense/VA 29 % 59 % Human Services and Solutions 57 % 14 % Public Health/Life Sciences 14 % 27 % Contract Mix: Time and Materials 84 % 76 % Cost Reimbursable 9 % 20 % Firm Fixed Price 7 % 4 % Prime vs Sub: Prime 94 % 89 % Subcontractor 6 % 11 % 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.The Company is presenting additional non-GAAP measures to describe the impact from two short-term FEMA task orders' on its financial performance for the three and six months periods ended March 31, 2022. The measures presented are revenue, operating income, net income, diluted earnings per share, and EBITDA for our enterprise contract portfolio less the respective performance on the FEMA task orders. These resulting measures present the remaining contract portfolio's quarterly financial performance compared to results delivered in the prior year period. Definitions of these additional non-GAAP measures are set forth in the footnotes to the reconciliation table below.
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 Six Months Ended March 31, March 31, (in thousands) 2022 2021 Change 2022 2021 Change Net income $ 7,178 $ 2,567 $ 4,611 $ 14,982 $ 4,381 $ 10,601 (i) Interest expense, net 554 1,004 (450 ) 1,226 2,084 (858 ) (ii) Provision for taxes 2,522 1,049 1,473 5,265 1,790 3,475 (iii) Depreciation and amortization 1,881 2,029 (148 ) 3,866 4,091 (225 ) EBITDA $ 12,135 $ 6,649 $ 5,486 $ 25,339 $ 12,346 $ 12,993 Net income as a % of revenue 6.6 % 4.2 % 2.4 % 5.7 % 3.7 % 2.0 % EBITDA as a % of revenue 11.2 % 10.8 % 0.4 % 9.7 % 10.3 % (0.6)% Revenue $ 108,699 $ 61,506 $ 47,193 $ 261,500 $ 119,358 $ 142,142 Reconciliation of GAAP revenue, operating income, net income, diluted earnings per share, and non-GAAP EBITDA reported for the three and six months ended to the same metrics for our contract portfolio less the FEMA task orders:
Three Months Ended Six Months Ended March 31, March 31, ( in thousands) Ref 2022 2021 Change 2022 2021 Change Revenue Total enterprise $ 108,699 $ 61,506 $ 47,193 $ 261,500 $ 119,358 $ 142,142 Less: FEMA task orders to support Alaska (a) 39,764 — 39,764 130,889 — 130,889 Remaining contract portfolio (a) $ 68,935 61,506 7,429 $ 130,611 $ 119,358 $ 11,253 Operating income Total enterprise $ 10,254 $ 4,620 $ 5,634 $ 21,473 $ 8,255 $ 13,218 Less: FEMA task orders to support Alaska (b) 5,525 $ — $ 5,525 11,871 — 11,871 Remaining contract portfolio (b) $ 4,729 $ 4,620 $ 109 $ 9,602 $ 8,255 $ 1,347 Net income Total enterprise $ 7,178 $ 2,567 $ 4,611 $ 14,982 $ 4,381 $ 10,601 Less: FEMA task orders to support Alaska (c) 4,089 — 4,089 8,785 — 8,785 Remaining contract portfolio (c) $ 3,089 $ 2,567 $ 522 $ 6,197 $ 4,381 $ 1,816 Diluted earnings per share Total enterprise $ 0.50 $ 0.19 $ 0.31 $ 1.04 $ 0.32 $ 0.72 Less: FEMA task orders to support Alaska (d) 0.28 — 0.28 0.61 — 0.61 Remaining contract portfolio (d) $ 0.22 $ 0.19 $ 0.03 $ 0.43 $ 0.32 $ 0.11 EBITDA Total enterprise $ 12,135 $ 6,649 $ 5,486 $ 25,339 $ 12,346 $ 12,993 Less: FEMA task orders to support Alaska (e) 5,525 — 5,525 11,871 — 11,871 Remaining contract portfolio (e) $ 6,610 $ 6,649 $ (39 ) $ 13,468 $ 12,346 $ 1,122 Ref (a): Revenue for the Company’s remaining contract portfolio less the FEMA task orders represents our consolidated revenues less the revenues generated from the FEMA task orders.
Ref (b): Operating income attributable to the remaining contract portfolio less the FEMA task orders represents the Company’s consolidated operating income, determined in accordance with GAAP, less the operating income derived from the FEMA task orders. Operating income for the FEMA task orders is derived by subtracting from the revenue attributable to such task orders during the three months ended March 31, 2022 of $39.8 million the following amounts attributable to the task orders: contract costs of $33.7 million and general & administrative costs of $0.6 million. Similarly, for the six months ended March 31, 2022 operating income for the FEMA task orders is derived by subtracting from the revenue attributable to the tasks orders of $130.9 million the following amounts attributable to the task orders: contract costs $117.9 million and general & administrative costs of $1.1 million. Operating income for the remaining contract portfolio for the three and six months ended March 31, 2022 represents the Company’s consolidated operating income for such period less the operating income attributable to the FEMA task orders for such period.
Ref (c): Net income attributable to the remaining contract portfolio less the FEMA task orders represents the Company’s consolidated net income, determined in accordance with GAAP, less the net income derived from the FEMA task orders. Net income for the FEMA task orders is derived by subtracting from the revenue attributable to such task orders during the three months ended March 31, 2022 of $39.8 million the following amounts attributable to the task orders: contract costs of $33.7 million, general & administrative costs of $0.6 million, and income tax expense of $1.4 million. Similarly, for the six months ended March 31, 2022 net income for the FEMA task orders is derived by subtracting from the revenue attributable to the tasks orders of $130.9 million the following amounts attributable to the task orders: contract costs $117.9 million, general & administrative costs of $1.1 million, and tax expense of $3.1 million. Net income for the remaining contract portfolio for the three and six months ended March 31, 2022 represents the Company’s consolidated net income for such period less the net income attributable to the FEMA task orders for such period.
Ref (d): Diluted earnings per share (diluted EPS) for the FEMA task orders is calculated using the net income attributable to such task orders as opposed to GAAP net income. Diluted EPS for the remaining contract portfolio (total contract portfolio excluding the FEMA task orders) is calculated by subtracting the diluted EPS for the FEMA task orders from the Company's total diluted EPS.
Ref (e): EBITDA attributable to the FEMA tasks orders of $5.5 million and $11.9 million for the three and six months ended March 31, 2022, respectively, is arrived at through the same calculation as operating income as there are not any depreciation and amortization costs attributable to the FEMA tasks orders. EBITDA for the remaining contract portfolio is calculated by subtracting the EBITDA attributable to the FEMA task orders from the Company’s total EBITDA.